Insights 
VT 
The Euro’s Downward Momentum
Over the next few weeks, downward momentum suggests a further decline towards 1.1490 is possible. Stability may only occur if EUR breaches the ‘strong resistance’ level of 1.1655, previously set at 1.1695.
Meanwhile, the Michigan Consumer Sentiment Index is forecast to slip from 55.1 in September to 54.2 in October. This reflects ongoing pessimism among US consumers amidst a challenging labour market. Despite these conditions, the US dollar’s negative impact might be cushioned by increased safe-haven demand.
US tariffs continue to function as an essential policy tool, maintained by the US government for public finance and foreign policy.
The Euro’s weakness is pronounced, and with the sharp drop we saw this week, a move below 1.1540 appears increasingly likely. Conditions are oversold, but momentum to the downside remains strong after four consecutive days of losses. This suggests that any minor rebound will probably be temporary.
Central Bank Policy Divergence
This view is supported by the clear policy divergence between the central banks. The latest figures from earlier this quarter showed Eurozone inflation cooling to 2.5%, while the US Consumer Price Index continues to hover stubbornly around 3.1%, keeping the Federal Reserve on high alert. This interest rate differential is a powerful driver for a stronger dollar.
For derivative traders, buying put options on the EUR/USD provides a straightforward way to position for a continued decline. We are looking at strikes near the 1.1500 level, with expirations in late October or early November to capture the expected move. The primary target for this downward leg remains the 1.1490 support zone.
A more risk-defined strategy would be to implement a bear put spread, such as buying a 1.1550 put and selling a 1.1450 put. This lowers the upfront cost of the position while still offering solid profit potential if the Euro weakens as anticipated. It is an effective way to trade this view without taking on unlimited risk.
This market dynamic is reminiscent of the environment we saw back in mid-2022, when aggressive Federal Reserve tightening caused the EUR/USD to break below parity. While we are not expecting a move of that magnitude now, the historical precedent shows how quickly the pair can fall when monetary policies diverge. The persistence of US tariffs as a policy tool further supports the dollar’s role as a safe haven.
It is critical to define the risk on any bearish position. A sustained move back above the 1.1655 resistance level would invalidate this negative outlook. A breach of that level would indicate the downward pressure has stabilized and would force us to reconsider our short-term strategies.
