Insights 
VT 
The Euro (EUR) has decreased by 0.3% against the US Dollar (USD), reflecting renewed weakness as it approaches the mid-1.16 level. Market analysis shows the EUR is extending its decline below the 50-day moving average of 1.1683, breaking a descending trend line from the July highs.
Political uncertainty persists in France as President Macron works to form a coalition, with outgoing PM Lecornu continuing talks. France-Germany yield spreads have slightly widened but remain within 2024’s extended ranges, while Germany-US spreads remain favourable for the EUR.
Sentiment measures are showing a bearish turn, with risk reversals reducing the premium for EUR upside protection. The Relative Strength Index (RSI) has fallen below 50, suggesting increasing bearish momentum. There are no major support levels between the mid-1.16s and 1.15, indicating a potential range-bound scenario near 1.1650 to 1.1750.
We are seeing the Euro trade defensively around the mid-1.16s, largely because of the political gridlock in France following the snap election last month. The spread between French and German 10-year bonds has now widened to over 80 basis points, a level that is making markets nervous. This situation echoes the similar risk-off sentiment we witnessed during the budget uncertainty in late 2024.
This political uncertainty is happening alongside a slowing economy, with the latest Eurostat flash estimate showing manufacturing PMI dropped to 48.5 in September, indicating contraction. The European Central Bank is in a tough spot, having held rates steady at 3.25% last month due to persistent services inflation. This inability to signal future cuts is adding to the pressure on the currency when compared to the US.
In the options market, sentiment has clearly turned bearish for the Euro. The cost of puts to protect against a fall in EUR/USD is rising relative to calls, signaling that traders expect more downside ahead. This view is supported by recent CFTC data showing that speculative funds have increased their net short positions on the Euro to the highest level since the second quarter of 2025.
Given the break below key technical levels like the 50-day moving average around 1.1683, derivative traders should consider strategies that profit from a further decline. Buying EUR/USD put options with a strike price near the next major support level of 1.15 for a November or December expiry could be a viable approach. This allows traders to capitalize on the accelerating downward momentum while defining their risk.
