The Euro (EUR) has dropped 0.3% against the US Dollar (USD), showing signs of weakness as it nears the mid-1.16 level. Recent market analysis indicates that the EUR is falling below the 50-day moving average of 1.1683, breaking a downward trend from July’s highs. Political instability in France continues as President Macron tries to create a coalition, with former PM Lecornu still in talks. The gap between France and Germany’s bond yields has widened slightly but remains within the expected range for 2024. In contrast, the gap between Germany and the US remains favorable for the Euro. Sentiment is turning negative, with reduced demand for EUR upside protection in risk reversals. The Relative Strength Index (RSI) has dipped below 50, indicating growing bearish momentum. There are no significant support levels between the mid-1.16s and 1.15, suggesting a potential range between 1.1650 and 1.1750. The Euro is trading cautiously around the mid-1.16s, mainly due to the political deadlock in France following last month’s snap elections. The gap between French and German 10-year bonds has risen to over 80 basis points, causing market unease. This situation reminds us of the cautious sentiment during the budget uncertainty in late 2024. This political turmoil coincides with a slowing economy. The latest Eurostat report shows that the manufacturing PMI dropped to 48.5 in September, pointing to a contraction. The European Central Bank is in a difficult position, having held rates steady at 3.25% last month because of ongoing inflation in services. Its inability to hint at future rate cuts is adding pressure to the Euro compared to the US Dollar. In the options market, sentiment for the Euro has clearly turned bearish. The cost of put options to protect against a drop in EUR/USD is rising compared to call options, indicating that traders expect further declines. This view is supported by recent CFTC data, which shows that speculative funds have raised their net short positions on the Euro to the highest level since the second quarter of 2025. With the break below important technical levels like the 50-day moving average around 1.1683, traders might consider strategies to profit from further declines. Buying EUR/USD put options with a strike price near the next major support level of 1.15 for a November or December expiration might be a good strategy. This allows traders to take advantage of the downward momentum while also defining their risk.

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