The EU is about to sign a free trade agreement with the Mercosur bloc, 25 years after starting talks. This agreement will eliminate import taxes on over 90% of exports within 15 years. It will cut taxes on 92% of Mercosur exports to the EU over 10 years and 91% of EU exports to Mercosur countries over 15 years. Some EU countries were against this deal because they worried about competition in agriculture. To get support from Italy and ensure it passes with a qualified majority vote, some concessions were made. For Mercosur, the main benefit is economic, while the EU sees it as a way to strengthen its geopolitical stance amid global trade tensions.

Ratification Process

The agreement needs approval from the EU Parliament and consensus from all 27 member states, which could take a while. Implementation will be gradual, so the EU will see economic benefits slowly. Right now, there are no plans to change economic forecasts while waiting for the agreement to be ratified and fully put into action. European Commission President Ursula von der Leyen plans to sign the deal on January 17. Looking ahead to the EU-Mercosur agreement, signed in principle around this time in 2025, it’s clear that the economic benefits are still far off. The long ratification process, which needs approval from the European Parliament and all member states, drives opportunity. The gradual reduction of tariffs over 15 years is expected to be slow, not an immediate shock to the market. We should focus on political volatility instead of the deal’s fundamentals. Data from 2025 showed a slight 3% increase in German automotive exports to Brazil shortly after the signing, suggesting some market optimism. However, we need to protect our long positions by keeping an eye on any renewed opposition from France or Poland, which might change market sentiment quickly.

Impact on Commodities and Currency Markets

For commodities, Brazilian agricultural exporters benefited from a nearly 5% year-over-year increase in soy exports to the EU in the second half of 2025. This indicates that long-term call options on major Mercosur agricultural firms could be advantageous, especially during the gradual tariff phase-out. However, these positions should be balanced with the significant headline risks from ongoing European ratification discussions. In the currency market, especially with the EUR/BRL pair, expect reactions more tied to political news than the slow rollout of the trade deal. The Brazilian Real saw an uptick in volatility after signing the agreement in 2025, but no clear trend emerged, highlighting political uncertainty’s dominance. It’s wise to use options to trade potential volatility spikes around key parliamentary votes in the coming months. Create your live VT Markets account and start trading now.

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