A meeting between Trump and EU President von der Leyen led to a new trade tariff agreement between the EU and the US. Following this weekend’s news, the EUR/USD pair saw a slight rise and has stayed fairly stable since. US equity index futures reacted positively, starting the new week strong. The agreement includes a 15% tariff rate, with the EU committing to buy energy from the US. We expect a 90-day extension to be discussed between the US and China in Stockholm.

Trade Framework Overview

President von der Leyen discussed the EU/US trade framework, which currently does not address tariffs on aircraft. Reports suggest that a temporary pause on tariffs between the US and China may also be extended by another 90 days. We see this framework agreement as a temporary boost for the euro, but uncertainty remains since the deal is not finalized. After the initial rise, the currency pair’s sideways movement indicates the market’s hesitance to fully embrace a resolution. Derivative traders should avoid unsupported rallies until more solid information becomes available. The unresolved tariffs on aircraft are a major concern, recalling a past dispute where the WTO allowed over $11 billion in retaliatory actions. This uncertainty is likely to cause price fluctuations, with implied volatility on three-month EUR/USD options increasing to 7.8% from last week’s average of 6.5%. Traders can benefit from this volatility by buying straddles or strangles without taking a specific position.

Impact of Trade Tensions

Historically, long-lasting trade tensions have negatively affected Europe’s manufacturing sector, with Germany’s IFO Business Climate Index dropping over three points during similar conflicts in the past decade. Traders should keep an eye on upcoming German factory order and ZEW Economic Sentiment data. Any signs of weakness could quickly reverse the euro’s recent gains, creating opportunities for put option buyers. The expected 90-day tariff extension from the talks with China adds another layer of uncertainty. A delay will not fix the problem, and any negative news from those negotiations could lead to a flight to safety, boosting the US dollar. This situation would pose a significant challenge for the euro, despite any progress made by von der Leyen. Create your live VT Markets account and start trading now.

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