Trump has announced a 30% tariff on the European Union, effective August 1. Germany’s Merz plans to collaborate with Macron and von der Leyen to address trade issues before this takes effect. The EU has decided to hold off on any retaliatory actions to allow for further discussions. In the aftermath, the USD initially gained strength but soon dropped again. US equity index futures opened lower, with no signs of recovery. The EUR has risen, reaching around 1.1695 against the USD, while USD/JPY has fallen to about 147.00. Both the AUD and NZD are also declining.

Trade Data Expectations

Aside from these developments, there’s no major news. China’s trade data for June is still awaited and is scheduled for release on July 14. This situation showcases how news-driven trading can lead to quick changes in currency and equity markets. The tariff announcement put immediate upward pressure on the US dollar, which typically happens during international trade tensions. However, the fact that this initial strength didn’t last indicates that traders are uncertain if this move alone justifies a significant shift in US assets. Merz’s prompt collaboration with French and EU leaders aims to maintain internal unity before the August deadline. Timing is crucial here: markets rarely account for long-term risks until they have to. The EU’s choice to delay retaliatory actions isn’t a lack of intention but a strategic decision—a pause that gives market participants some breathing space. However, this breathing room can come with a cost, allowing currency markets to react quickly and potentially shift expectations permanently. This explains why EUR/USD climbed despite broader risk-off signals. It’s not often we see such a clear example of relative policy actions driving gains. The decline in Asia-linked currencies like the AUD and NZD also highlights the situation. It’s no surprise these pairs were affected—both are closely tied to global trade, and speculative positions were already heavily weighted long.

Volatility Adjustments And Strategic Anticipations

We have adjusted our short-term volatility expectations for dollar-yen and euro-dollar, leading to wider pricing spreads on all contracts expiring after July 15. The JPY’s decline against the dollar to around 147.00 may lead to revisiting April’s intervention zone. While we don’t see an urgent need for a directional bias yet, we are preparing for possible policy responses from Tokyo, depending on this month’s inflation data. US equity futures drifting lower fits the trend. The absence of a rebound shows that no one is expecting a supportive policy change from Washington soon. Technical indicators are slowly degrading, making any future price adjustments more costly week by week. In such conditions, responsiveness is more valuable than simply having a directional bias. Looking ahead to July 14, the upcoming Chinese trade figures could reveal more lingering supply-chain issues. We have observed a decline in export figures since April. If this trend continues, it might intensify existing short positions in Asia FX and encourage defensive moves into the euro and, to a lesser degree, sterling. We have reduced our exposure to beta-sensitive currency pairs and widened our hedging thresholds on volatility strategies extending beyond July. Pricing isn’t broken, but spreads are tighter than what might be expected given the realized risks. If you’re modeling decay curves, apply a longer lag for political risks, especially since the EU and US are on completely different response timelines. Create your live VT Markets account and start trading now.

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