Insights 
VT 
The Euro stabilised as the US Dollar eased slightly after disappointing US manufacturing figures. Data showed the US ISM Manufacturing PMI declined to 48.7 in October, the eighth month of decline, while the Eurozone’s equivalent remained stable at 50. EUR/USD traded around 1.1525, hovering close to three-month lows despite weaker US manufacturing data.
The US ISM report indicated persistent contraction in factory activity, with the Purchasing Managers Index (PMI) falling below expectations at 48.7. Sub-indices showed mixed results: New Orders improved to 49.4, but Production dropped sharply to 48.2, and Employment increased to 46. The Prices Paid index fell to 58, suggesting decelerating cost increases.
Us Economic Data Discrepancies
In contrast, the S&P Global US Manufacturing PMI rose to 52.5 in October, marking three consecutive months of expansion despite questions about long-term sustainability. The US Dollar Index, measuring the Dollar’s strength, remained near 99.81, influenced by the Federal Reserve’s cautious approach following a recent rate cut. Meanwhile, the Eurozone’s factory activity showed moderate output growth, maintaining stability after a previous slowdown.
We are seeing a clear disagreement in US economic data, which creates opportunity. The conflict between the contracting ISM manufacturing report and the expanding S&P Global PMI suggests underlying instability in the economy. For us, this points towards an increase in market volatility, as traders must eventually decide which signal reflects reality.
The US Dollar’s resilience, despite the poor ISM figure, is being driven by other, more important factors. Last week’s jobs report on October 31st showed the economy added a stronger-than-expected 210,000 jobs, and the latest CPI data from mid-October showed core inflation remains elevated at 3.8%. This gives the Federal Reserve cover to hold interest rates steady, which continues to support the dollar over the euro.
With EUR/USD hovering near the critical 1.1500 three-month low, this is a prime moment to use options to manage risk. We could consider buying put options to protect against a breakdown below this level or to speculate on further dollar strength. The Cboe EuroCurrency Volatility Index has already responded, ticking up to 7.5% from just 6% a month ago, signaling that the market is preparing for a bigger move.
Eurozone Manufacturing Outlook
In contrast to the conflicting US signals, the Eurozone’s manufacturing data shows stabilization right at the 50.0 PMI level. This relative steadiness might offer some support for the euro, but it is unlikely to fuel a major rally. The European Central Bank remains cautious, limiting the upside for the currency pair for now.
This situation is reminiscent of the market environment we experienced back in 2023, where contradictory economic reports led to choppy price action. During that period, strategies that bet on a defined range, such as selling iron condors, were profitable until a clear trend took hold. We should anticipate similar sideways movement in the near term but be prepared for a sharp breakout once the market gets more clarity from upcoming inflation or employment data.
