EUR/USD is trading higher for the third consecutive day, currently at 1.1645. The US Dollar is weakened by escalating trade tensions between the US and China, with focus on speeches from Federal Reserve and European Central Bank officials, including President Christine Lagarde.

In France, Prime Minister Lecornu survived a no-confidence vote, securing only 144 out of the 289 votes needed to oust him. The Prime Minister abandoned Macron’s controversial pension reform, a lifeline, but still faces passing a budget in a divided parliament.

Us China Tensions

US-China tensions persist, with President Trump declaring a trade war in a TV interview. Treasury Secretary Scott Bessent’s remarks on the Chinese negotiator failed to calm markets, hoping for resolution in an upcoming summit between Trump and Xi Jinping. Meanwhile, the Euro remains steady, especially against the Australian Dollar.

The US Dollar remains pressured due to trade uncertainty. Next week’s meeting between Trump and Xi Jinping may influence market stability, despite the Dollar’s vulnerability. ECB’s Pierre Wunsch and Martin Kocher suggested the rate-cutting cycle is nearly over.

The Federal Reserve found US economic activity resilient. Eurostat data indicated a 1.2% contraction in Eurozone Industrial Production for August, improving upon forecasts. EUR/USD’s bullish momentum is evident as it surpassed the 1.1635 resistance.

Christine Lagarde, expected to speak on the European economy, may affect the Euro’s trend. Stephen Miran and Michelle W. Bowman hold roles on the Federal Reserve’s Board of Governors, influencing economic policies.

Central Bank Policy Shifts

The US Dollar remains under pressure due to escalating trade tensions with China, creating a favorable environment for EUR/USD. The upcoming summit between the two leaders is the most significant event on the horizon, with the dollar likely to stay weak until a clear outcome emerges. This uncertainty suggests positioning for continued volatility in the near term.

We are seeing a subtle shift in central bank policy that favors the Euro. Recent comments from ECB officials suggest the rate-cutting cycle is nearing its end, a view supported by core inflation that has remained stubbornly above the 2% target, recently reported at 2.5% for September 2025. This contrasts with a Federal Reserve that seems more cautious, especially given the muted employment demand noted in their latest assessment.

Given the high event risk surrounding the trade summit, buying short-dated volatility seems prudent. Options strategies like straddles or strangles could benefit from a large price move in either direction following the meeting’s outcome. For those with a bullish bias on the Euro, buying call options with a strike price above the key 1.1670 resistance level offers a defined-risk way to play for a breakout towards the 1.1730 target.

A de-escalation from the US-China summit would likely trigger a sharp relief rally in the US Dollar, sending EUR/USD lower. Traders should consider hedging long positions by purchasing put options with a strike below the 1.1600 support level. Looking back, we saw similar risk-off reversals cause sharp drops in 2019 during the previous trade disputes, where optimistic headlines could erase a week’s gains in a single session.

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