Insights 
VT 
The Euro is under pressure due to political uncertainty in France, as President Emmanuel Macron’s reappointment of Sébastien Lecornu as Prime Minister fails to alleviate investor concerns. The Euro is now trading near a two-month low at about 1.1576 against the US Dollar, losing 0.35% for the day. France faces challenges as the conservative Les Républicains party expelled six lawmakers over their acceptance of ministerial positions, casting doubt on the government’s ability to pass its 2026 budget.
Us Dollar Gains Strength
Meanwhile, the US Dollar gained strength after the US and China showed signs of easing trade tensions. The US Dollar Index has risen above 99.00 following President Donald Trump’s softened stance on tariffs against China. Concurrently, the ongoing partial US government shutdown has reached its 13th day, with no progress expected until after the Columbus Day holiday. Prospects of two additional interest rate cuts by the Federal Reserve may limit the Dollar’s potential upswing, as traders foresee further easing to address labour market issues, despite inflation staying above the 2% target.
The heat map indicates that today, the US Dollar is strongest against the Euro, demonstrating relative stability amid global economic shifts.
With the Euro showing weakness due to French political uncertainty, we should consider strategies that benefit from a falling EUR/USD. The current instability is causing investors to worry about France’s ability to manage its budget, which directly pressures the common currency. Recent market data reinforces this, as the spread between French and German 10-year government bonds has widened by 15 basis points in the last week, a clear signal of rising risk aversion.
We saw a similar pattern of political risk weighing on the Euro back in late 2019, when trade tensions and internal European politics created volatility. That period showed us that French fiscal concerns are a recurring theme that can drive sustained downside pressure on the currency. Just as traders did then, we should view the current situation not as a temporary blip but as a significant headwind for the Euro.
Strategies For Falling Eur Usd
Given this outlook, buying put options on the EUR/USD is a straightforward way to position for a further decline while managing risk. This strategy allows us to profit if the pair drops below a certain price, with our maximum loss limited to the premium paid for the option. It is a defined-risk way to express a bearish view in an uncertain environment.
The US Dollar’s strength adds another layer to this trade, making short EUR/USD positions more attractive. Unlike the period discussed in the historical text where the Fed was cutting rates, the Federal Reserve is now holding firm, supported by recent data showing US core inflation at 3.1% and a steady unemployment rate of 3.9%. This policy divergence between a troubled Eurozone and a stable US gives the dollar a clear advantage.
For a more cost-effective approach, we could implement a bear put spread. This involves buying a put option at one strike price and selling another put option at a lower strike price, reducing the upfront cost of the trade. This strategy is ideal if we expect a moderate, rather than a dramatic, fall in the EUR/USD over the next few weeks.
However, we must remain cautious, as central bank commentary could change the picture quickly. Any hints from European Central Bank officials that they are uncomfortable with the Euro’s weakness could provide temporary support for the currency. Similarly, any unexpected resolution to France’s political issues could cause a sharp reversal.
