The German economic minister says the EU is negotiating from a weak position and needs to improve this. New tariffs are a heavy burden, and the US commitments made on Sunday will be examined closely. It’s unclear how the $600 billion investment in the US will affect Germany. The US Commerce Secretary noted that Trump was good at negotiating with the EU and believes the EU will eventually benefit from the deal. Seeing the EU in a weak negotiating position signals potential trouble for European assets in the upcoming weeks. The uncertainty around US tariffs suggests a negative outlook for the Euro. We expect continued pressure on the EUR/USD exchange rate, which has already dropped 3% over the last quarter, trading around 1.0550. This outlook is backed by Germany’s economic data. The latest Ifo Business Climate Index, released last week, fell to 87.3, its lowest in over a year, indicating weaker business expectations. New tariff threats will likely worsen the situation for Germany’s export-driven economy. For derivative traders, this means a defensive or bearish strategy on European markets may be wise. The uncertainty will likely raise volatility, making options costlier but also more valuable as a protective measure. We are thinking about buying put options on the DAX index to guard against a potential downturn due to trade concerns. We’ve seen this pattern before during the first tariff announcements in 2018. Markets reacted with sharp increases in volatility, and currencies of trade-dependent countries weakened against the US dollar. We expect a similar, if slightly less intense, reaction this time as markets assess the potential impact. The latest Commitment of Traders report backs this view, as large speculators have raised their net short positions on the Euro for the fourth week in a row. This shows that big market players are already preparing for further declines. We believe it’s wise to follow this trend for now.

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