The Euro (EUR) has dropped slightly by 0.1% against the US Dollar (USD). Nevertheless, it is still holding up better than most G10 currencies. Recent trade tensions are affecting market mood, which helps the EUR serve as a safer option. However, German ZEW sentiment data has not met expectations, creating more concerns about future industrial production. On another note, the difference in yield between German and US bonds has not changed, which does not explain the EUR’s recent dip. Political developments are raising alarms, particularly with French Prime Minister Lecornu’s latest budget plans. The increasing difference in yields between France and Germany indicates a shift in how risks are viewed, especially with a no-confidence vote looming from National Rally’s Le Pen. The market momentum shows a downward trend, with the RSI approaching new lows in the upper 30s. There is a lack of key support levels until 1.1500, and fluctuations are expected between 1.1480 and 1.1620.

FXStreet Insights Team

The FXStreet Insights Team collects valuable market insights from well-known analysts. They provide daily updates focused on various economic aspects, including China’s inflation, discussions from the Federal Reserve, and stable gold prices above $4,100. The report “Best Forex Brokers in 2025” offers information on top brokers that have low spreads and high leverage. Please note that this information is not investment advice and carries market risks. Given the renewed trade tensions, the US Dollar is getting stronger. However, the Euro is showing some strength as an alternative safe-haven currency. Despite this, clear weaknesses within the Eurozone are making it difficult. Therefore, we recommend a cautious to bearish approach toward the EUR/USD pair in the coming weeks. The outlook for the Eurozone economy is looking bleak, especially after Germany’s disappointing ZEW sentiment data. This follows a report from last week showing that German factory orders decreased by 1.2% in August 2025, heightening the risk of a technical recession this winter. The unchanged yield spreads between Germany and the US indicate that this economic situation hasn’t been fully factored into the currency yet. Political risks in France are a significant source of short-term volatility, as a no-confidence vote is scheduled for this Thursday. The widening gap between French and German government bond yields signals market stress, reminiscent of the political turmoil following the snap election in mid-2024. If the no-confidence vote is successful, it could lead to a sharp sell-off in the Euro.

Trading Strategies

For traders who expect a downward move, a direct strategy is to buy put options on the EUR/USD with strike prices at or below the 1.1500 support level. Options expiring in late October or early November would capture potential impacts from the French budget situation. The early August 2025 low just below 1.1400 is a logical target. The political uncertainty provides a strong case for buying volatility. Implied volatility on one-month EUR/USD options has risen to 7.2% from 6.0% in the last ten days, but it could exceed 9% if the French government collapses. A long straddle could profit from significant price movement in either direction, which seems likely this week. In the expected range of 1.1480 to 1.1620, a more cautious strategy involves selling call spreads. A bear call spread with a short strike above 1.1620 allows traders to collect a premium while managing risk. This approach would be beneficial if the EUR/USD pair remains below this critical resistance level until expiration. Create your live VT Markets account and start trading now.

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