Insights 
VT 
The Euro weakened against the Dollar, falling 0.31% to 1.1599. This occurred after US President Trump eased his rhetoric on China, boosting the US Dollar Index to 98.95. Hopes for a US government reopening and renewed trade talks lifted the Dollar. Trump is expected to meet with Chinese President Xi Jinping, as optimism grows that the government shutdown could soon end.
Monetary Policy Moves
The Eurozone remains quiet, with traders awaiting speeches from ECB leaders. The US economic calendar is empty until the Bureau of Labor Statistics releases its inflation report. This awaits the Federal Reserve’s monetary policy decision next week. The Federal Reserve is predicted to cut the rate by 25 basis points, lowering it to between 3.75% and 4%. Meanwhile, the ECB is likely to keep its rates unchanged, with a 98% probability.
Technical analysis sees EUR/USD neutral to bearish, with key support at 1.1600. Inflation data often impacts the Euro, influencing interest rates and economic attractiveness. Eurozone trade balance data and economic indicators such as GDP also affect the currency’s strength. A positive trade balance typically strengthens the Euro.
We are seeing renewed US dollar strength this week, driven by positive talks on technology tariffs with China following the G20 summit. This geopolitical relief is pushing the DXY, or dollar index, back toward the 104.50 mark, a level we have not seen since last quarter. For traders, this puts immediate pressure on the EUR/USD pair, which is struggling to hold above 1.0750.
The outlook for the Federal Reserve and the European Central Bank is diverging, creating a clear path for traders. Recent US inflation data came in at 3.4%, slightly above expectations, reinforcing the Fed’s “higher for longer” stance on interest rates. In contrast, last week’s German Manufacturing PMI fell to 44.2, signaling continued economic weakness and making an ECB rate hike unlikely this year.
Opportunities and Risks
This environment suggests positioning for further downside in the Euro using options. Buying put options with strike prices below 1.0700 could be a direct way to profit if the pair continues to fall in the coming weeks. We should also watch implied volatility, which could rise if ECB speakers next week sound more concerned about the Eurozone economy.
We remember how sensitive the currency markets were to geopolitical headlines during the 2018-2019 trade disputes. The current calm could be temporary, and any reversal in US-China sentiment could quickly inject volatility. This setup feels similar to the conditions that drove the pair below parity back in 2022, reminding us that a break of key support levels can lead to sharp, extended moves.
On the technical side, the pair is trading below its 100-day moving average, a bearish signal. A decisive break below the 1.0700 psychological support level could open the door to testing the year’s low near 1.0620. For those using futures, this presents a clear opportunity to initiate or add to short positions, targeting these lower levels.
