The Euro is experiencing a challenging period, nearing a two-month low against the US Dollar. This week, it is poised for its worst performance of the year, with a decline of over 1.4%. Political developments in France, such as the unexpected resignation of Prime Minister Sébastien Lecornu, have contributed to this downturn as markets anticipate President Emmanuel Macron’s appointment of a successor. Meanwhile, the US Dollar shows resilience, gaining from investor caution amid political instability in both France and Japan.

The USD Index (DXY) has increased by nearly 1.7% this week. The uncertainty in France, coupled with apprehensions about Japan’s potential policy changes, has bolstered demand for the Dollar. Recent comments from the Federal Reserve have not significantly weakened the Dollar, as political factors remain dominant. Meanwhile, the European Central Bank noted global uncertainties but sees no imminent change in its policy.

Anticipation For US Consumer Sentiment

The anticipation for the US Michigan Consumer Sentiment Index is high, with expectations pointing to a drop to 54.2 in October from 55.1 in September. Consumer sentiment affects economic growth predictions, as it gauges spending willingness. This month’s release is critical, given it provides one of the few data points available due to the US government shutdown.

Given the Euro’s weakness and the US Dollar’s strength, we should be positioning for a continued slide in the EUR/USD pair. With the pair breaking below the key 1.1600 support level, derivative traders are looking at put options to capitalize on further downside. This strategy allows us to profit from a falling price while capping our maximum loss at the premium paid for the option.

The political situation in France is the primary driver of Euro weakness, and we don’t see that resolving quickly. Macron’s choice for a new prime minister is unlikely to break the parliamentary gridlock, which has revived memories of the European sovereign debt crisis of the early 2010s. Implied volatility on the Euro has spiked over 15% in the last week, showing that the market is pricing in larger price swings and fears of instability.

Focus On Michigan Consumer Sentiment Data

All eyes are now on the University of Michigan Consumer Sentiment data, one of the few reliable economic reports available during the US government shutdown. Last week’s Conference Board consumer confidence report for September 2025 already showed a sharp drop to 98.5, its lowest reading since the brief recession scare of 2024. If today’s Michigan number also comes in below the expected 54.2, it could signal deeper economic trouble, but a better-than-expected number would likely send the dollar surging higher.

Considering this, we believe buying EUR/USD put options with a one-month expiry is a prudent move. Targeting strike prices around the 1.1500 and 1.1450 levels offers a good risk-to-reward profile, aligning with technical support zones. This allows us to benefit from the prevailing bearish momentum driven by both European political risk and the dollar’s safe-haven appeal.

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