EUR/USD is slightly up as markets watch trade and economic policy changes. The pair is trading above 1.1700, despite facing some economic challenges. US-EU trade tensions are rising as we approach the August 1 tariff deadline. Important meetings on July 22-23 may lead to retaliatory tariffs from the EU if negotiations fail.

Potential Tariffs and Economic Impact

These tariffs might affect American exports, including digital services and aerospace products. Existing tariffs on autos, steel, and aluminum are still in place and impact economic data releases. Thursday’s European Central Bank (ECB) interest rate decision is also in focus. This announcement will shed light on interest rates and the risks to the European economy. EUR/USD has gone above the 23.6% Fibonacci retracement level at 1.1649 and is aiming to test the resistance at 1.1720, with the 20-day simple moving average acting as near-term resistance. If the pair breaks this resistance, it may reach 1.1830 and 1.1900. However, if it fails to stay above 1.1649, it could drop to 1.1556.

Role of the Euro and Market Volatility

The Euro is the currency for 19 EU countries and makes up 31% of global foreign exchange transactions. The ECB affects the Euro through interest rates and inflation control. The Euro’s value is significantly influenced by trade balance, inflation, and economic data releases. A positive trade balance and strong economic data can boost the Euro. The next few weeks present a critical period with significant event risks. Although the pair is currently above 1.1700, major policy decisions may lead to volatility. Derivative traders should prepare for sharp price movements rather than a steady trend. Trade negotiations are crucial, with US-EU trade exceeding $1.3 trillion each year. Failed talks could lead to retaliatory actions, shaking this economic relationship. Current option pricing reflects the uncertainty as we approach the deadline. We should also focus on the central bank’s upcoming decision. Eurozone inflation was reported at 2.5% in June by Eurostat, leading many to expect a rate hold. However, Lagarde’s forward guidance will be closely analyzed for any signs of a more cautious approach, and this guidance will significantly affect the Euro’s direction. Given the uncertain nature of these events, strategies that benefit from increased volatility seem wise. Using options to prepare for large price swings, regardless of direction, could be a smart move. This approach allows traders to capitalize on the outcomes of high-stakes negotiations and monetary policy announcements. If trade talks go well and the central bank remains neutral, we might see a breakthrough at the 1.1720 resistance level. In this case, buying call options could help capture potential gains toward 1.1830 with defined risk. Historically, positive trade negotiations have led to short-term strength in the currency. On the other hand, if negotiations fail or the central bank signals weakness, the pair could quickly test lower support levels. In this situation, we would consider put options to protect against a decline toward 1.1556. This strategy safeguards portfolios against the fallout from renewed protectionism. Beyond these immediate events, we will closely monitor economic data as it comes in. Reports like the German ZEW Economic Sentiment and Eurozone trade balance will provide essential insights into economic health. These figures will impact the pair’s direction long after current headlines fade. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now