EUR/USD is ending the week with a 0.21% loss, but it has stayed above 1.16 for the third day in a row. US inflation data fell short of expectations but remains below the Federal Reserve’s 2% goal. Reports from S&P Global indicate strength in the economy, with growth in manufacturing and services PMIs for October.

Key Economic Influences

The University of Michigan shows that consumer confidence is declining, while there may be rising prices due to a long US government shutdown. The US Dollar Index slightly increased to 98.94. The US Consumer Price Index (CPI) rose by 3.0% year-over-year, while the core CPI saw a slight dip from the previous month. Business activity in the US for October demonstrated resilience, as manufacturing and services PMIs improved. However, consumer sentiment dipped a bit, and inflation expectations remain mostly unchanged. The Federal Reserve is expected to reduce rates by 25 basis points soon. The technical outlook for EUR/USD is neutral, with support at 1.1600 and resistance near the 20- and 100-day simple moving averages (SMAs). In 2022, the Euro made up 31% of all forex transactions. The European Central Bank strives to maintain price stability through interest rate changes. Key economic indicators like GDP and trade balances can greatly impact the Euro. Strong data tends to strengthen the currency by increasing demand for exports.

Trading Strategy Considerations

The EUR/USD pair is trading in a narrow range above 1.16, reflecting mixed signals from the US. Weak inflation data suggests a potential rate cut by the Federal Reserve, while unexpectedly strong business activity PMIs point to economic strength. This uncertainty presents challenges. The CME’s FedWatch Tool shows an 88% chance of a rate cut in November, although the economic data doesn’t fully confirm this. The ongoing US government shutdown, now in its fourth week, along with a new trade investigation into China, introduces notable political risks. A preliminary report from the Congressional Budget Office on October 23, 2025, suggested the shutdown could reduce Q4 GDP growth by about $2 billion per week, potentially forcing the Fed to act regardless of the data. Traders should prepare for quick increases in volatility related to news from Washington D.C. In Europe, the scenario is somewhat mixed. Improving PMI data suggests the economy is recovering. Eurostat reported on October 22, 2025, that Eurozone industrial production increased by 0.8% month-over-month, which is positive for the Euro. However, Moody’s negative outlook for France highlights ongoing sovereign debt challenges in the region, which could limit the Euro’s potential. With key support at 1.1600 and resistance around 1.1660, traders might consider strategies to profit from this consolidation. Selling an iron condor with short call options above 1.1750 and short put options below 1.1550 for December expiration could effectively generate premium, as long as the currency pair stays within this range in the coming weeks. However, we must also stay alert for possible breakouts due to political events or unexpected moves from the Fed. Current implied volatility for EUR/USD options is low, with the Cboe EuroCurrency Volatility Index (EVZ) around 6.5%, below its three-month average of 8.0%. This makes buying long straddles or strangles a cost-effective way to hedge against or profit from a sharp market move in either direction. In summary, the market heavily leans towards the Fed cutting rates, which should exert downward pressure on the US Dollar. A simple way to position for this outcome is to buy EUR/USD call spreads, offering a defined-risk approach to target a move towards the 1.1800 level. This strategy bets that the Fed’s dovish stance, rather than the strong PMI data, will primarily influence the dollar in the last quarter of 2025. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now