Insights 
VT 
On Friday, EUR/USD experienced a rise, trading at 1.1697, an increase of 0.27%. This came after the US Bureau of Economic Analysis reported that the core Personal Consumption Expenditures (PCE) Price Index was aligned with forecasts but remained under the 3% mark.
Following this report, odds for a decrease in borrowing costs by the Federal Reserve rose to 88%. Federal Reserve officials discussed economic conditions, expressing concerns over the labour market and inflation trends.
Upcoming Economic Indicators
In Europe, economic news was sparse, with attention turning to geopolitical tensions, particularly towards Russia. In upcoming weeks, the US will release a range of economic indicators like the ISM Manufacturing PMI and Nonfarm Payrolls.
In Europe, the focus will be on Business Climate and September inflation figures. The US PCE Price Index rose 2.9% year-on-year in August, meeting expectations. The University of Michigan’s Consumer Sentiment reading for September fell below predictions, showing a weaker outlook.
Trade announcements included new tariffs on various products by President Donald Trump. The ECB’s Consumer Expectations Survey showed expectations of inflation with adjustments over different time frames.
EUR/USD struggled to maintain levels above 1.1700, having reached 1.1650 earlier. The Relative Strength Index (RSI) suggests potential further declines if certain supports are breached, while resistance remains at 1.1700.
Derivatives Traders Strategy
We are seeing the EUR/USD pair recover towards the 1.1700 level as traders feel more confident the Federal Reserve will cut interest rates. The latest core Personal Consumption Expenditures (PCE) report, which came in at 2.9%, is fueling bets that the Fed will act soon to support a fragile economy. This sentiment is strong, with market probabilities for a rate cut now sitting at a high 88%.
This view is supported by the broader economic picture we’ve observed throughout 2025. Recent data shows a continued cooling in the US labor market, with the August Nonfarm Payrolls report adding just 165,000 jobs, missing expectations and marking the fourth consecutive month of slowing job growth. This trend gives weight to dovish comments from Fed officials and suggests the path of least resistance for the dollar is down.
For derivatives traders, this points toward positioning for a weaker dollar in the coming weeks. We should look at buying EUR/USD call options with expirations in October or November to capitalize on a potential break above the 1.1750 resistance. A surprisingly weak US jobs report next week could be the catalyst for such a move.
However, we must balance this with the risks coming from Europe. Heightened geopolitical tensions with Russia over the reported Estonia incursion are placing a cap on the Euro’s strength. We must not forget how the Euro fell below parity with the dollar in 2022 during the initial conflict in Ukraine, showing how sensitive the currency is to regional instability.
This situation creates a conflict for the European Central Bank, as recent Eurozone inflation data has been sticky. The latest flash Harmonized Index of Consumer Prices (HICP) for September came in at 3.1%, surprising markets that expected a fall below 3%. A hawkish ECB and a dovish Fed typically favor a stronger Euro, but the geopolitical risks are a powerful counterforce.
The announcement of new US tariffs on a range of goods introduces another major variable. We remember how similar trade disputes back in the 2018-2019 period created sharp, unpredictable swings in currency markets. This development significantly raises the odds of increased market volatility.
Given these conflicting signals, simply betting on one direction is risky. A better strategy would be to trade the expected rise in volatility itself. We should consider using options strategies like straddles or strangles, which profit from a large price movement in either direction without needing to predict which way the market will break.
