Insights 
VT 
The Euro (EUR) is stable, trading against the US Dollar (USD) around the lower 1.16s range. Preliminary Euro area PMI reports showed a modest recovery in manufacturing, reaching 50, indicating neutrality between expansion and contraction. Services surprisingly rose to 52.6 from 51.3, surpassing expectations of 51.1.
Germany and France PMI Reports
Germany’s reports revealed manufacturing contraction and a service sector rise to 54.5, against expectations of 51. France continues to experience contraction in both sectors. The Euro’s fundamentals indicate a bullish outlook, with rising Germany-US spreads offering support. There is no anticipated change in policy at the European Central Bank’s upcoming meeting.
Political uncertainty in France persists due to challenges in budget and pension reform discussions. The Euro’s technical indicators are neutral, with a flat trend since July. The current range is between 1.1580 and 1.1680, bound by last week’s low of 1.1550 and a high above 1.17. This analysis is provided by the FXStreet Insights Team, who collate market observations from various financial experts.
With the Euro consolidating just above 1.16, the market is showing clear signs of indecision. The conflicting economic data, with German services surprising to the upside while French manufacturing remains in contraction, creates a neutral environment. This lack of a strong directional signal suggests that selling volatility is a primary strategy for the immediate term.
Given the flat technical indicators and the tight range between 1.1580 and 1.1680, strategies like short straddles or iron condors could be effective. These positions profit from the currency pair remaining stable and are supported by the current market sentiment. We see this reflected in the Euro FX Volatility Index (EVZ), which recently fell to 5.6%, a level not seen since the relative calm of mid-2024 and far below the double-digit figures from early 2023.
Germany US Yield Spread and Euro Outlook
However, we note a bullish undercurrent from the widening Germany-U.S. 2-year yield spread, which has expanded to over 40 basis points in Germany’s favor. This fundamental pressure suggests a potential upside break, even if the timing is uncertain. Cautiously bullish traders could consider buying call spreads to position for a move toward 1.1700 while defining their risk.
The political uncertainty in France regarding budget discussions introduces a specific downside risk. To hedge against any sudden negative headlines, purchasing cheap, out-of-the-money put options is a prudent measure. This acts as insurance against a sharp drop below the 1.1550 support level mentioned last week.
All positions should be re-evaluated ahead of the European Central Bank’s meeting next Thursday, October 30th. While we expect no policy changes, the post-meeting press conference is a known catalyst for volatility. Any short-volatility positions should likely be closed or hedged before that event to avoid unexpected price swings.
