Insights 
VT 
The Euro is climbing, reaching above 1.1650 amidst hopes for a US-China trade agreement and expectations of a Federal Reserve rate cut. Positive remarks from US President Donald Trump about a meeting with Chinese President Xi Jinping have kept the US Dollar under pressure.
Trump plans to meet Xi on Thursday, following a deal with Japan concerning rare earths supply. US inflation data indicates a likely Fed rate cut of 25 basis points, despite the government shutdown affecting data collection. The Euro saw a mild boost against other currencies, while the US Dollar’s rebound hinges on the Fed signalling a potential December cut.
Eurozone Data Analysis
Eurozone economic data remains weak, as shown by Germany’s GFK Consumer Confidence Index plunging further than expected. The US-Japan agreement on reducing reliance on Chinese minerals also affects market sentiment, with the Euro benefiting from a more positive risk mood.
Technical analysis reveals that EUR/USD needs to pass resistances at 1.1670 and 1.1730 to confirm a bullish trend. The US-China trade tension, resumed with Trump’s White House return, continues impacting the global economy. Trade barriers have intensified, leading to price increases in affected goods.
With the EUR/USD pressing against resistance near 1.1670, the immediate focus is on tomorrow’s Federal Reserve decision. The market is pricing in a rate cut, which is currently weakening the dollar. We see this as a classic “buy the rumor” scenario, creating significant risk if the Fed’s statement is not as dovish as expected.
For the coming days, options strategies are ideal for navigating the volatility from the Fed announcement. Given the binary nature of the event, purchasing a short-dated straddle on the EUR/USD could be effective, as it would profit from a large price swing in either direction. Implied volatility is elevated, reflecting this uncertainty, similar to patterns we saw around FOMC meetings during the turbulent 2022-2023 rate hike cycle.
Risk Management Strategies
Looking at the data, the market is almost certain of a cut. The CME FedWatch Tool, as of this morning, indicates a 92% probability of a 25-basis-point reduction, which explains the dollar’s current weakness. Any deviation from this, particularly a lack of signaling for a third cut in December, could trigger a sharp reversal and send the EUR/USD back towards the 1.1575 support level.
Beyond the Fed, the renewed US-China trade narrative under President Trump is the primary driver of risk appetite. This situation is highly dependent on headlines, making long-term directional bets with futures risky. We should instead consider using longer-dated options, such as December or January contracts, to position for continued volatility as these trade talks evolve.
We remember how this played out during the 2018-2019 trade war, when sudden shifts in tone caused sharp moves in currency pairs and equities. Back then, markets would react instantly to presidential comments, a pattern that appears to be repeating itself. Monitoring the VIX index, which is currently subdued at 15.6, will be key; a spike above 20 would signal a significant shift back to risk-off sentiment.
Therefore, a cautious approach using defined-risk strategies is warranted. For those anticipating a continued Euro climb, a bullish call spread would allow participation in the upside while capping potential losses if the Fed disappoints. Conversely, if we believe the weak German consumer confidence data will eventually weigh on the Euro, a bearish put spread offers a way to position for a downturn without taking on unlimited risk.
