Insights 
VT 
The Euro (EUR) is seeing a cautious trade with a slight 0.1% decrease against the US Dollar (USD), nearing Wednesday’s lows around 1.16. This EUR weakness is attributed to unexpected declines in German trade data for August, indicating a potential slowdown in the eurozone’s economic outlook.
The recent contraction in German exports follows lacklustre industrial production figures, further suggesting economic challenges. Despite these developments, yield spreads remain unchanged, and the European Central Bank’s comments are neutral. Meanwhile, France’s political environment shows uncertainty, with President Macron expected to appoint a new Prime Minister by Friday.
Narrowing Yield Spread
The narrowing France-Germany 10Y spread indicates growing confidence in Macron’s cabinet formation before the October 13 budget deadline. The Euro continues its defensive stance, nearing 1.16, with a Relative Strength Index below 40 suggesting a mild bearish trend. Limited support is seen between 1.16 and the early August low of under 1.14, with an anticipated range between support at 1.16 and resistance at 1.1650.
These observations include insights from commercial and internal analysts, with Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret providing expert analysis.
We are seeing familiar pressure on the Euro, driven by renewed weakness in the German economy. The latest data for August 2025 showed a surprise 0.8% contraction in German exports, which follows the disappointing industrial production figures from the last quarter. This suggests the core of the Eurozone’s economy is facing significant headwinds.
For those trading options, this points toward buying puts on the EUR/USD. With the pair currently struggling to hold the 1.07 level, strikes around 1.06 or 1.05 for November expiries could be a prudent strategy. Implied volatility has edged up to 7.2% as traders begin to price in a greater chance of downside movement.
Bearish Play Strategy
A more conservative play would be to use a bear put spread, which would cap your risk if the market moves sideways. For instance, buying a put with a 1.06 strike while simultaneously selling one at a 1.04 strike defines your potential profit and loss. This approach is well-suited for an environment of modest bearish momentum rather than a sharp market drop.
We are also watching the France-Germany 10-year yield spread, which has widened by 5 basis points this week, unlike the narrowing we saw during similar periods of uncertainty back in 2017. While ECB comments remain neutral for now, the interest rate swaps market is pricing in a 40% chance of a rate cut in the first quarter of 2026. This shift in expectations adds to the bearish sentiment surrounding the Euro in the coming weeks.
