Insights 
VT 
During Monday’s North American session, the EUR/USD remained mostly stable, slightly down by 0.05% to approximately 1.1643, having reached a daily peak of 1.1675. The US economic schedule was quiet, coinciding with the extended US government shutdown, now in its twentieth day.
US market attention is centred on domestic politics and President Donald Trump’s statements. He suggested potential threats to China and mentioned plans to visit the country next year. The release of the Consumer Price Index (CPI) report on Friday is also being closely watched.
European Market Overview
In Europe, ECB officials, like Bundesbank President Joachim Nagel, indicated a willingness to wait and observe rate changes. Meanwhile, the German Producer Price Index (PPI) in September was softer than expected for the third consecutive month, but the EUR/USD remained unaffected.
Market participants are also awaiting ECB President Christine Lagarde’s upcoming speeches. The US Dollar Index (DXY) increased by 0.08% to 98.62. President Trump indicated 100% tariffs on China are “unsustainable” and confirmed a meeting with China’s President Xi Jinping.
Key EUR/USD resistance levels are at the 100-day SMA (1.1650), 20-day SMA (1.1677), and 50-day SMA (1.1692), with support at 1.1600, 1.1550, and 1.1500.
Looking back, it’s clear the market was stuck in a tight range around 1.1650, driven by political noise like government shutdowns and trade commentary. Today, on October 21, 2025, the situation is vastly different, with the EUR/USD trading near 1.0520. The primary driver is no longer daily political headlines but a significant divergence in central bank policy.
Monetary Policy Divergence
The government shutdowns of that era are a distant memory, replaced by a singular focus on the Federal Reserve’s inflation fight. The latest US Consumer Price Index for September 2025 came in at a persistent 3.1%, keeping pressure on the Fed to maintain its restrictive stance. This data supports the dollar, as futures markets are now pricing in a 40% chance of one final rate hike before the year ends.
Conversely, the European Central Bank’s old “wait-and-see” mode has turned decisively dovish. With Eurozone inflation having cooled to 2.5% and recent German Producer Price Index figures showing a contraction for the fourth straight month, ECB officials are openly discussing the timing of rate cuts for 2026. This growing policy gap between a hawkish Fed and a dovish ECB is the main force weighing on the euro.
For derivative traders, this suggests positioning for further euro weakness is the path of least resistance. Buying long-dated EUR/USD put options, perhaps with a strike price around 1.0300 and an expiry in early 2026, would directly play this monetary policy divergence. Implied volatility has risen to 8.5% for 3-month options, reflecting market anticipation of continued downward movement.
We have seen this playbook before, such as during the 2014-2015 period when a similar policy divergence sent the EUR/USD pair tumbling over 20%. The US Dollar Index, which was at 98.62 back then, is now firmly above 107, testing its highs from last year. Therefore, any short-term rallies in the euro towards the 1.0600 resistance should be seen as opportunities to sell EUR futures or structure bearish option spreads.
