The AUD/USD has climbed close to 0.6700 as tensions between the US and EU put pressure on the US Dollar. The Eurozone opposes the US’s aim to acquire Greenland. Germany has called the US’s tariff threats “unacceptable” and hinted at possible counteractions. During the European trading session, the Aussie gained strength while the US Dollar struggled. The US Dollar Index (DXY) dropped by 0.2%, reaching around 99.20.

Tensions Over Greenland

President Trump announced a 10% tariff on several EU countries, warning of further increases unless Greenland is obtained by the US. Greenland’s Prime Minister reiterated defiance against such pressures, while Germany promised to counter any new tariffs. The Australian Dollar held steady as markets awaited employment data. Predictions indicate that 30,000 jobs were added in December, but the unemployment rate may rise to 4.4%. The US Dollar is the world’s most traded currency, accounting for over 88% of global forex turnover. The Federal Reserve impacts its value through monetary policy by adjusting interest rates to control inflation and employment. Strategies like quantitative easing, which involves printing more dollars, can weaken the Greenback, while quantitative tightening strengthens it. With the US Dollar Index around 99.20, the market shows signs of reacting to escalating trade disputes between the US and EU. The threat of tariffs tied to Washington’s interest in Greenland creates uncertainty and weighs on the Greenback. This environment suggests being cautious with dollar-long positions in the short term. In the upcoming weeks, we should prepare for continued weakness in the Greenback, as geopolitical tensions usually take time to resolve. Options strategies that benefit from a falling dollar, such as buying puts on dollar-tracking ETFs or calls on major currencies like the Euro or Swiss Franc, could be successful. History suggests that trade disputes, like those in 2025, can have lasting effects on currency values.

Increased Market Volatility

The rising tensions from both the US and Germany indicate increased market volatility. Recent data reveals that currency volatility indexes, like the CBOE EuroCurrency Volatility Index, have risen over 12% in the past week alone. This environment makes strategies like long straddles on EUR/USD appealing, as they can profit from significant price movements in either direction, especially if tariffs are applied or suddenly removed. Shifting focus to the AUD/USD, its strength near 0.6700 comes mainly from the broader weakness of the US dollar. However, we need to pay attention to Australia’s employment data for December 2025, due this Thursday. A disappointing report could reverse the Aussie’s recent gains, making this a critical event for the pair. To manage this risk, we can use derivatives to protect current long positions in the AUD/USD. For example, buying put options with a strike price just below the current market level can shield against a poor jobs report. This strategy allows us to maintain our position while hedging against the specific risk from the upcoming data. The current risk-off sentiment has pushed gold prices to record highs above $4,700, favoring safe-haven currencies. Data shows that the Swiss Franc is performing well against the dollar today, a trend reminiscent of last year’s market turbulence. We should consider call options on the Franc to take advantage of any further flight to safety. Create your live VT Markets account and start trading now.

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