Eurozone inflation increased, with headline CPI reaching 2.2% while core CPI remained at 2.3% for the fifth month. This aligns with market expectations, mainly due to energy prices, supporting the ECB’s careful approach.
Recent ECB member comments show minimal disagreement, suggesting that the dovish voices may remain quiet. In EUR/USD markets, recent actions indicate a pause without strong catalysts. The yen serves as a more favourable channel to EUR for US shutdown risks, and the technical prospects are less supportive for the euro soon.
Risks For EUR/USD
Risks for EUR/USD lean towards an increase, with downside concerns primarily on the US side. However, surpassing the 1.180 mark might require new data inputs.
With Eurozone inflation holding firm at 2.2%, we see the European Central Bank maintaining its cautious policy stance. This provides a solid foundation for the euro, even as the EUR/USD pair shows signs of fatigue around the 1.1780 mark today, October 2nd, 2025. The rally appears to be waiting for a new catalyst before attempting to breach the significant 1.1800 resistance level.
The primary risks in the coming weeks seem concentrated on the US side, which could favor a higher EUR/USD. We are closely watching the upcoming US government funding deadline set for October 17th, which brings back memories of the market jitters we experienced during similar standoffs back in 2023. Any sign of political gridlock in Washington could weaken the dollar and propel the euro higher.
Strategy And Market Outlook
Given the current environment, we believe selling options to collect premium is a viable strategy for the near term. Implied volatility for EUR/USD has recently dipped to 6.5%, below its one-year average of 7.8%, suggesting the market is not pricing in a major move just yet. An iron condor with strikes set between 1.1650 and 1.1850 could capitalize on this expected range-bound trading.
However, we must be prepared for a potential upside breakout, especially with tomorrow’s US Non-Farm Payrolls report on the horizon. A weaker-than-expected jobs number could be the trigger needed to break past 1.1800. Therefore, buying cheap, short-dated call options with a 1.1825 strike price could offer significant upside at a limited cost.
To hedge against any unexpected dollar strength, purchasing out-of-the-money put options can serve as a protective measure. Looking at the latest data from the German ZEW Economic Sentiment survey released this week, which showed a surprising uptick, the underlying fundamentals for the Eurozone appear stable. This reinforces the view that any significant downside in EUR/USD would likely be driven by a surprise US-positive event rather than euro weakness.
