The EUR/USD pair returned to the mid-1.16-1.17 range due to rising US-EU trade tensions. A Supreme Court decision on tariff legality adds to the uncertainty. Many wonder if EU leaders will respond with similar measures to those used by China. Emerging risks, like potential disagreements within NATO, are key concerns on the current agenda.

Market Environment Looks Tough for USD

President Trump will speak at Davos soon, and EU leaders will meet shortly afterward. The market is leaning against the USD amidst these events. As the EUR/USD rebounds amid trade disputes, the situation feels familiar. The recent announcement from the White House about reviewing tariffs on European industrial goods is putting pressure on the dollar. This uncertainty is creating chances in the currency markets for those well-positioned. In 2018, we saw a similar scenario where the dollar initially strengthened, but as the EU’s potential for retaliatory tariffs became more likely, the dollar weakened. Data from that time shows that once the market accounted for reciprocal trade actions, the EUR/USD pair eventually rose. The overall conditions seem to be turning against the USD again. Recent statistics support this view. Eurostat data from last week revealed the Eurozone’s trade surplus with the United States grew by 4.2%, giving the EU a stronger position in negotiations. Additionally, US inflation for December was slightly higher than expected at 2.9%, limiting the Federal Reserve’s options.

Hedging Existing Portfolios

For traders focusing on derivatives, this points to higher expected volatility for the EUR/USD pair. Buying EUR call options for March or April could be a simple way to bet on further gains in the currency pair. This strategy allows profits from a rising Euro while limiting losses to the premium paid. The rising tensions also make option strategies that benefit from price swings, no matter the direction, increasingly attractive for hedging existing portfolios. With ongoing political uncertainty, we anticipate implied volatility to rise from the lows seen in late 2025, suggesting option premiums may increase in the coming weeks. Create your live VT Markets account and start trading now.

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