US President Donald Trump will deliver a keynote address at the World Economic Forum in Davos at 13:30 GMT. His travel to Davos was delayed due to an “electrical issue” with Air Force One. In his speech, Trump is expected to discuss the US government’s views on Greenland. He has been pressuring EU countries that oppose US plans for Greenland. This has led to 10% tariffs on some EU nations, which might increase to 25%.

EU Response to Tariffs

In reaction, EU countries are ready to impose countermeasures, calling the tariffs a form of coercion. World leaders have criticized the additional US tariff threats and are advocating for a more collaborative international approach. Trump’s comments about Greenland may affect the EUR/USD currency pair. Aggressive statements from Trump could heighten tensions, weaken the US dollar, and disrupt trade relations. A gentler approach might ease tensions, benefiting riskier assets and the US dollar. The US dollar is the most traded currency worldwide, making up over 88% of global forex transactions. The Federal Reserve’s monetary policies, such as quantitative easing and tightening, greatly impact the USD. Looking back, it’s been a year since the January 2025 speech where the White House took a tough stance on Greenland, leading to a trade conflict. The 10% tariffs on key EU countries started then and were later raised to 25% that summer. The EU retaliated with its own tariffs, resulting in a year of economic strain between the US and Europe that changed market dynamics.

Economic Resilience and Divergence

This ongoing trade dispute has highlighted differing economic resilience. While the US dollar initially weakened after the 2025 speech, the US economy endured the tariffs better than anticipated, with GDP growth of 2.1% in Q4 2025. Meanwhile, the Eurozone economy, especially Germany’s export-driven model, struggled with just 0.4% growth during the same period. These economic differences have affected central bank decisions. With US core inflation at 3.5%, above the target, the Federal Reserve has limited options for rate cuts. In contrast, the European Central Bank faces disinflation, as Eurostat shows headline inflation has dropped to 2.3%. This raises speculation of monetary easing in the near future. This policy divergence has pushed the EUR/USD down significantly from last year’s level of 1.1700, now trading near 1.0820. Previous support levels, like the trendline at 1.1533, have now turned into tough resistance. The market has clearly shifted in favor of the dollar over the past year. In the upcoming weeks, we see an opportunity in selling out-of-the-money call options on EUR/USD. This strategy enables traders to earn premiums, betting that the pair will not significantly rise above key resistances like 1.1000. It allows for a bearish-to-neutral stance while managing risk. The ongoing low-level trade tensions keep implied volatility sensitive to political news. This means that selling these options can yield attractive premiums. This strategy works well if the euro weakens or simply stays within a range, allowing the value of the options to decrease over time. Create your live VT Markets account and start trading now.

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