The USD had mixed results after the US-EU trade agreement. The EURUSD dropped sharply, while the GBPUSD fell only slightly before stabilizing. The USDJPY rose as the dollar gained value after the trade news. President Trump and European Commission President Ursula von der Leyen reached the trade agreement, preventing a possible trade war before the August 1 deadline. Key details include a 15% baseline tariff on many EU goods, quota systems for EU metal exports, and the EU’s commitment to buy $750 billion in U.S. energy. They also agreed to a zero-for-zero tariff structure for some products.

Expected Import Figures

For 2024, the EU is projected to account for about 18.4% of U.S. goods imports. Major contributors include Germany at $160.4 billion, Ireland at $103.3 billion, and Italy and France at approximately $75.8 billion and $59.7 billion, respectively. Notable events coming up include the FOMC rate decision, U.S. employment data release, and earnings reports from Meta, Microsoft, and others. The U.S. stock market is showing positive trends, with the S&P and NASDAQ indices rising in premarket trading. Additionally, U.S. Treasury yields have seen slight increases across different maturities. We believe the initial response to the trade agreement is a stronger U.S. dollar, despite some headlines suggesting otherwise. The agreement avoids a trade war but imposes tariffs that heavily impact the European economy, leading to a decline in the EURUSD. This dollar strength is a key trend to monitor in the coming days. For the EURUSD, we are observing crucial technical levels like the 100 and 200-hour moving averages for indications of further declines. The new 15% baseline tariff on many European goods makes the euro less appealing in the short term. We should explore strategies that take advantage of further euro weakness until the market fully grasps the deal’s long-term effects.

Increase in USDJPY

The rise in USDJPY is a result of the dollar rally, boosted by rising U.S. bond yields. As long as U.S. yields stay strong, this currency pair is likely to keep climbing. Traders should pay attention to the correlation with the U.S. 10-year yield, which has surpassed 4.4%. The differences in central bank policies are expected to amplify currency movements. Officials like Mr. Kazimir have indicated that the European Central Bank is reluctant to act, while the U.S. Federal Reserve maintains a “higher-for-longer” approach. Current data from the CME FedWatch Tool shows a greater than 90% chance that the Fed will keep rates unchanged this week, which strengthens the dollar against the euro. This week is full of risk events, setting the stage for volatility. We expect market fluctuations around the Fed’s interest rate decision on Wednesday and the US employment report on Friday. Historically, implied volatility for short-term options increases leading up to these major data releases, creating opportunities for traders expecting sharp price changes. In addition to macro data, earnings reports from large technology companies will significantly influence market sentiment. Strong results from companies like Apple and Microsoft could increase risk appetite, while any signs of weakness might push investors toward safer assets, further boosting the dollar. We should be ready for quick sentiment shifts based on these corporate results. Given the busy schedule, we believe that buying volatility is a wise strategy. The VIX, a key indicator of expected stock market volatility, has recently been around a low level of 13, indicating that options are not too expensive. This offers a cost-effective way to hedge or prepare for the major price movements we anticipate this week. Create your live VT Markets account and start trading now.

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