Insights 
VT 
The Euro remains steady around 1.1630, supported by positive data from Germany. The IFO business expectation index in Germany rose to 91.6 in October, surpassing the forecast of 90.0 and up from 89.8 in September, reflecting ongoing recovery in the Eurozone. This improvement suggests that further easing by the European Central Bank is less likely.
French Fiscal Concerns
Meanwhile, France faces challenges as Moody’s cut its credit outlook to negative while maintaining its Aa3 rating, citing political instability. This move came as French lawmakers postponed a vote on a Socialist wealth tax proposal. Socialist party leader Olivier Faure has suggested he might attempt to unseat the government if their demands are not met. However, such actions are viewed as political manoeuvring, with expectations that the 2026 budget will eventually pass to avoid elections, given their current polling struggles.
We are seeing a familiar dynamic in EUR/USD, where positive economic sentiment from Germany is being held back by fiscal concerns in France. This push-and-pull is creating a range-bound environment, reminding us of a similar situation back in late 2023. The key difference now is that implied volatility has fallen, which presents specific opportunities for option sellers.
The German IFO Business Climate index has shown a slow but steady recovery, recently printing at 90.7 for October 2025, a noticeable improvement from the 87.5 level seen this time two years ago. This gradual recovery supported the European Central Bank’s decision to pause its rate-cutting cycle that began in mid-2024. We believe the ECB will remain on hold through the end of the year, compressing the potential for large interest rate-driven moves in the euro.
On the other hand, the French fiscal situation remains a significant drag on the single currency’s potential. Moody’s has maintained its negative outlook on France’s credit rating since their initial warning in 2023, citing a public deficit that is still projected to be 4.1% of GDP for 2025, well above the EU’s 3% target. This unresolved political and fiscal tension is effectively capping any rally in the EUR/USD pair.
Trading Strategies Amidst Market Uncertainty
For traders, this suggests that selling volatility could be a prudent strategy over the coming weeks. With the ECB and the US Federal Reserve both appearing to be on a prolonged pause, a range-bound market is likely to persist. Strategies like short strangles or iron condors on EUR/USD could capitalize on this expected lack of large directional moves.
However, we recommend using defined-risk trades, as any unexpected escalation in French politics or a surprise inflation print could quickly reintroduce volatility. Buying put spreads could be an effective way to position for a downside break should French fiscal worries intensify. Conversely, call spreads offer a limited-risk way to bet on the German recovery narrative eventually winning out.
