Insights 
VT 
The Euro fell for the third straight day, nearing 1.1600 amid a political deadlock in France and growing concerns over US government funding. As the Euro struggles, the Dollar gains from risk-averse sentiments, with the EUR/USD trading at 1.1635 as of writing.
Pressure mounts on French President Macron with calls for a snap election and potential credit downgrades if the political situation persists. In the US, Senate leaders fail to make progress on government funding, with only a 23% chance of resolution this week, impacting market sentiment.
Impact Of Political Issues
Euro’s performance suffers from France’s political issues and the US government shutdown, keeping bearish trends in place. Former French Prime Minister Lecornu’s statements offer slight respite for the Euro, yet ECB President Lagarde sees disinflation completed in the Eurozone.
US Federal Reserve discussions remain split over inflation fears and policy directions. German factory orders fell by 0.8% in August, while year-on-year saw a 1.5% rise, marking ongoing economic challenges in Europe.
Technically, the EUR/USD is close to 1.1610 support, with RSI and MACD indicators suggesting further depreciation. Support and resistance levels at 1.1610 and 1.1720 influence the euro’s potential movement.
Given the pressure on the EUR/USD, we are looking at strategies that benefit from a further decline. The political issues in both France and the United States are creating a clear downward trend for the pair. This environment is favorable for purchasing put options on the Euro or selling EUR/USD futures.
Pressure On The Euro Due To Political Uncertainty
The political uncertainty in France is a major weight on the Euro, and it is not just talk. We’ve seen France’s 10-year bond spread over German bunds widen to 85 basis points, a level reminiscent of the market stress during the 2017 election cycle. This suggests traders are actively pricing in higher risk, making long Euro positions unattractive.
On the other side of the trade, the US Dollar is gaining strength as a safe haven due to the government shutdown. Looking back at the 16-day shutdown in October 2013, we saw it trim an estimated 0.6% from Q4 GDP growth, and a prolonged event now could have a similar chilling effect on the economy. Paradoxically, this immediate risk is fueling demand for the dollar, strengthening the case against the Euro.
The upcoming FOMC minutes are a key catalyst that could push the pair through its support levels. With recent US Core PCE inflation still elevated at 2.8%, any hawkish hint in the minutes will likely accelerate the dollar’s rally. In contrast, with Eurozone HICP at 2.1%, President Lagarde has little reason to offer any hawkish support for the Euro.
From a technical standpoint, the pair is testing a critical support level at 1.1610. A decisive break below this could trigger further selling toward the 1.1575 area. We could use this 1.1610 level as a trigger point, perhaps buying put options with a 1.1550 strike price expiring in the next few weeks to capitalize on a breakdown.
