The eurozone economy grew slightly in Q2, with a 0.1% increase, which was better than the expected stagnation of 0.0%. France and Spain showed strong performance, while Italy and Germany struggled. On a yearly basis, the economy expanded by 1.4%, surpassing the forecast of 1.2%. Attention now turns to how the new trade agreement with the US will affect the economy, as the European Central Bank sticks to its current expectations.

Eurozone Growth Context

While the slight growth in the eurozone is noteworthy, it doesn’t change our main outlook. This small gain may provide short-term support for European stocks, but the new US trade deal will be the real game changer. We view this data as just a minor detail in light of the larger uncertainties ahead. We don’t expect this report to influence the European Central Bank’s interest rate decisions. The economy is expanding too slowly for any aggressive shifts, with inflation expectations decreasing to 2.1% for the rest of 2025. This suggests that the Euro may have a tough time rising against the dollar, favoring a strategy that uses options to trade within a limited range. The contrast between the strong growth in France and Spain and the challenges faced by Germany and Italy presents a clear opportunity. We see potential in pair trades, such as buying call options on the French CAC 40 index while buying puts on the German DAX. This strategy plays on the ongoing economic differences within the Eurozone.

Market Volatility and Strategy

As the market processes the new US trade deal, we expect an increase in volatility in the coming weeks. The VSTOXX index, which measures Eurozone equity volatility, is currently around 14.5, lower than its one-year average of 18. This scenario makes buying options, like straddles on the Euro Stoxx 50, an attractive strategy to profit from significant price fluctuations. We’ve observed this behavior before, especially during the slow recovery following the 2011 sovereign debt crisis. At that time, small positive data often failed to sustain market rallies as larger risks loomed. This historical perspective urges us to approach this small GDP gain with caution and focus on managing risk. Create your live VT Markets account and start trading now.

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