The EUR/USD exchange rate has risen over 0.40% as traders shift away from the Dollar, influenced by US President Trump’s tariff threats against the European Union. The rate climbed above 1.1640 after Trump announced tariffs linked to Greenland, causing concern in global markets. **Economic Discussions in Europe** In Europe, discussions focus on the EU’s potential retaliatory actions, which might include €93 billion in tariffs on American products. Recent inflation data revealed a drop below the European Central Bank’s 2% target, suggesting that interest rates may stay stable this year. The US Dollar Index (DXY) has fallen by 0.32% to 99.06 amid these tensions. With the Federal Reserve entering its blackout period before its next meeting, investors are looking forward to upcoming economic reports, including the World Economic Forum in Davos and the US ADP Employment Change. The Euro has experienced mixed movements against other major currencies. This month, it has increased by 0.91% against the US Dollar. Ongoing trade disputes and shifts in economic data have strongly impacted currency values, with technical analysis indicating potential direction changes for the EUR/USD pair based on moving averages. We are witnessing a classic risk-off scenario as the US intensifies its trade war, pushing EUR/USD above 1.1640. This sudden geopolitical tension brings significant uncertainty, reminiscent of the US-China disputes in 2018-2019 when the VIX volatility index spiked over 40% in response to similar tariff news. A wise strategy is to buy options to take advantage of this increased volatility rather than just focusing on direction. **Caution on the Dollar’s Safe Haven** Although the Dollar has initially weakened, we should be cautious about dismissing its safe-haven appeal completely. Looking back at 2018-2019, the DXY often strengthened as investors anticipated the resilience of the US economy despite trade issues. If the EU’s response appears weak or if their economic data falters, a reversal for the Dollar is possible. We need to differentiate the Euro’s current strength from its economic reality. With Eurozone inflation dropping to 1.9% in December 2025, the European Central Bank has no motivation to raise interest rates this year. This difference in policies makes the EUR/USD rally fundamentally weak and vulnerable to a sharp decline if trade fears lessen. As we approach the Federal Reserve’s blackout period ahead of its January 28 meeting, developments from the Davos forum and EU retaliation plans will guide price movement. We should use options to position ourselves around key technical levels, particularly the resistance at the 50-day SMA near 1.1656 and support at the 200-day SMA of 1.1586. Any indication of easing tensions could lead to the pair quickly testing those lower levels. Create your live VT Markets account and start trading now.

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