The Euro is making a comeback against the US Dollar after dropping to a two-week low, influenced by trade tensions between the US and EU. The EUR/USD pair faced challenges due to US tariff threats but is now recovering, showing some cautious optimism about negotiations. ## Current Market Performance Right now, the EUR/USD pair is trading at approximately 1.1689, bouncing back from an intraday low of 1.1654. The US Dollar Index is steady, just below 98.00, as traders wait for upcoming US Consumer Price Index (CPI) data and more updates on trade issues. In light of US tariff threats, the EU plans to keep its retaliatory tariffs on hold until August in hopes of reaching an agreement. The proposed US tariffs could disrupt trade significantly, prompting the EU to prepare €21 billion in targeted tariffs, with a larger €72 billion package ready if needed. European Trade Commissioner Maroš Šefčovič announced a second set of countermeasures that may affect €72 billion worth of US imports, showing the EU’s readiness to act if talks break down. However, the EU prefers to find a negotiated solution. Looking ahead, key economic reports will influence the EUR/USD, especially US CPI figures and Eurozone inflation data. Inflation remains a concern for the US Federal Reserve, which is working to manage rising prices. ## Strategy And Market Outlook We believe the Euro’s current sideways movement is misleading, hiding built-up pressure. While the market seems quiet, factors for a major breakthrough are aligning. For derivative traders, this is not the time to choose a direction; it’s about buying volatility. Implied volatility now appears unusually cheap, with the Cboe EuroCurrency Volatility Index (EUVIX) dipping below 6.0, a low level that feels overly relaxed given the looming challenges. History tells us that low volatility periods, like before the 2018 trade-war escalations, often lead to sharp, significant movements. The situation presents a dual threat. First, the geopolitical standoff. We shouldn’t view Šefčovič’s countermeasures as mere rhetoric; that €72 billion package is a serious card in negotiations. A sudden agreement before the August deadline could push the Euro sharply higher, while a failure to negotiate and implementation of tariffs would likely send the Euro plummeting below recent lows. This binary outcome is ideal for long options strategies. Second, the inflation disparity is becoming more pronounced. The latest US CPI reading has slightly cooled to a 3.3% annual rate, giving the Federal Reserve some room, but it does not solve its core issue. In contrast, Eurozone inflation has risen to 2.6% in May, complicating the European Central Bank’s situation after its recent rate cut. This tension creates fundamental pressure that needs to be resolved. Therefore, we think the best strategy in the coming weeks is to prepare for a significant move, regardless of direction. A long straddle or a slightly wider and cheaper long strangle with options expiring after the August tariff deadline looks particularly appealing. You’re essentially betting that the current calm is misleading and that one of these strong forces—either a trade resolution or central bank reactions to inflation data—will push the EUR/USD pair out of its narrow range decisively. Paying a small premium now to capitalize on a potentially explosive move seems to be the smartest trade available. Create your live VT Markets account and start trading now.

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