Insights 
VT 
The Euro (EUR) has seen a slight rise of 0.2% against the US Dollar (USD) but is still underperforming compared to most G10 currencies. This occurs within a context of widespread USD weakness, according to Scotiabank’s Chief FX Strategists.
French politics are currently a focal point for markets, especially with an upcoming confidence vote. Euro area industrial production figures have exceeded expectations though they continued to contract in August, while France’s final CPI was static at 1.2% year-on-year. The Euro’s influencing factors have shifted to sentiment due to political concerns in France, with changes noted in EUR/spread correlations and a strengthening correlation to its 3-month risk reversals.
Sentiment And Political Concerns
The latter have improved, showing a modest premium for EUR calls over puts. Relief has followed French PM Lecornu’s successful dealings with the Socialist Party in anticipation of the confidence vote proposed by Marine Le Pen. The France-Germany 10-year yield spread has considerably narrowed, and may remain under scrutiny due to Socialist Party support based on suspending the 2023 pension reform.
The moderately bearish RSI is nearing neutral at 50, showing the Euro’s lukewarm recovery from the mid-1.15s. Despite breaking past a July trendline, the Euro faces congestion. It remains within a near-term range of 1.1580 to 1.1680, with no clear movement beyond the 50-day mark at 1.1691.
We are seeing a modest rise in the Euro, but it’s important to remember that sentiment, particularly from French politics, has become a more significant driver than pure economic data. Last year’s focus on the French confidence vote and pension reforms serves as a good reminder of this dynamic. Currently, the EUR/USD is trading around 1.1250, a very different environment from the 1.16 levels discussed previously.
With the new French budget debates creating headlines, the France-Germany 10-year yield spread is widening again, reaching 65 basis points this week after tightening significantly during the summer of 2025. This suggests that buying short-dated straddles or strangles on EUR/USD could be a prudent way to trade the expected increase in volatility. Historically, we saw similar spread-widening in late 2023 ahead of budget negotiations, which led to a 15% spike in one-month implied volatility.
Options Market Dynamics
Looking at the options market, the dynamics have shifted from what we observed in the past. Today, the 3-month risk reversals show a distinct bias for EUR puts, trading at a -0.5 delta, meaning traders are paying more for downside protection. For those who believe this pessimism is overdone, selling out-of-the-money put options to collect premium could be a viable strategy.
The previous range between 1.1580 and 1.1680 is a distant memory, but the principle of range-bound trading remains relevant in the current market. We see strong technical congestion between 1.1150 and 1.1300, with the 50-day moving average currently providing resistance at 1.1280. An iron condor options strategy, selling a call spread above 1.1300 and a put spread below 1.1150, could be an effective way to profit if the currency pair remains stuck in this channel.
