The Euro has fallen below 1.1630 as the US Dollar gains strength due to easing trade tensions. President Trump hinted at a potentially positive deal with China’s Xi Jinping. His encouraging remarks toward China have lifted the Dollar, with a meeting set to further address trade issues. The White House’s economic advisor believes the government shutdown will end soon, which could provide important data for the Federal Reserve’s decision on interest rates. This week, speeches from officials at the Fed and ECB will provide some context, but we shouldn’t expect major insights into monetary policy.

Currency Market Trends

In the currency market, the Euro has dropped 0.24% against the US Dollar and 0.58% against the Japanese Yen. Traders are focused on upcoming important meetings, especially the Federal Reserve’s, which could affect the Euro. In the Eurozone, the Euro is facing difficulties. Germany’s Producer Price Index has decreased slightly, which was unexpected. The EUR/USD has returned to a bearish trend, targeting the 1.1600 level, unless it breaks resistance at 1.1675. A weaker Euro reflects broader economic uncertainties tied to changing US-China trade relations. As the EUR/USD dips below 1.1630, the trend seems to be heading down for the coming weeks. The main factor is the renewed strength of the US Dollar, driven by optimism about a potential trade deal between the US and China next week. This positive outlook seems to overshadow expectations of a Federal Reserve rate cut, which markets now view as a temporary adjustment rather than the beginning of a longer-term easing cycle. This perspective is supported by differing economic data from the US and Eurozone. Recent reports showed US retail sales increased a surprising 0.8% in September, while the Eurozone continues to struggle with weak producer prices and low inflation. Recent ECB projections indicate core inflation may stay below 1.8% until the first half of 2026, which gives the ECB little reason to adopt a tougher stance.

Strategic Investment Decisions

Given the clear downward trend and specific targets around 1.1600 and 1.1545, we should think about buying EUR/USD put options. Purchasing puts with a strike price of 1.1600 or 1.1550 that expire in mid-November could allow us to profit if the Euro continues to fall after next week’s events. A bear put spread could also be a smart approach to minimize the initial cost of this position. Currently, market volatility is low as traders wait for the Fed meeting and the Trump-Xi discussions. This presents an opportunity, as the low implied volatility makes buying options cheaper than usual. We expect volatility to rise sharply next week, making this an ideal time to position ourselves for a significant price movement. We must also keep in mind the market behavior from 2017 to 2021 when trade-related news often caused sharp, unpredictable shifts in currency pairs. While the current trend is bearish for the Euro, a surprisingly positive trade deal could lead to a sharp relief rally. Therefore, using options to define risk is essential, as the situation could change quickly based on next week’s outcomes. Create your live VT Markets account and start trading now.

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