EUR/USD is holding steady around 1.1630, despite rising trade tensions between Europe and the US. This comes after a recovery from a low of 1.1585, even with weaker than expected inflation figures in the Eurozone. President Trump has announced potential 10% tariffs on European nations that disagree with Greenland’s annexation. In response, Europe is considering its own measures. These tensions are creating a cautious atmosphere in the market ahead of the Davos Economic Forum, where Trump will meet with key representatives.

Key Eurozone Economic Indicators

The Eurozone’s final Harmonised Index of Consumer Prices (HICP) for December was revised down to 1.9%, lower than the earlier estimate of 2%. However, the Core HICP growth remained steady at 2.3% year-on-year. The US market was quiet on Monday due to a bank holiday, with attention shifting to GDP and Personal Consumption Expenditures reports later this week. EUR/USD is currently near 1.1630, buoyed by technical indicators pointing to a bullish crossover, even as broader bearish trends linger. Immediate resistance is identified at 1.1640, with supports found at 1.1580 and 1.1560. The Euro, influenced by the European Central Bank’s policies, remains strong against the US Dollar, which was the weakest major currency on Monday. We remember the turbulent times in early 2025 when US tariff threats over Greenland pushed EUR/USD briefly to 1.1630. That rise was mainly due to a sudden dollar weakness rather than Euro strength. Today, with the pair trading much lower around 1.0950, the situation feels different.

Strategic Options Trading

The uncertainty from that period suggests a smart approach for the weeks ahead: using options to manage risk. Buying call options on EUR/USD lets traders benefit from a rise while limiting maximum loss to the premium paid. This is a sensible strategy given the unpredictable political landscape. Unlike last January’s politically charged environment, today’s focus is on economic fundamentals and differences between central banks. Eurostat’s latest data indicates HICP inflation at 2.8%, while the latest US CPI shows inflation at 3.1%. This narrowing gap in inflation supports the Euro, moving away from last year’s tariff-driven volatility. Looking back, the Greenland tariff scare led to a significant spike in implied volatility, benefiting those who held long volatility positions. We should keep an eye out for similar geopolitical events, as a straddle or strangle strategy could prove effective. This means buying both a call and a put option to profit from significant price movements in either direction. The market’s response in early 2025 mirrored trends from 2018-2019, where trade disputes initially weakened the dollar, followed by safe-haven flows supporting it. This historical pattern suggests any politically driven Euro strength might be temporary. Hence, we could consider selling out-of-the-money call options to collect premium, betting that the pair won’t surpass key resistance levels. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now