White House trade advisor Navarro thinks that the trade agreement between Japan and the US could pave the way for more deals with other countries. He is doubtful about reports suggesting a 15% tariff on EU goods, stating that the result depends on what the EU offers to President Trump. Currently, there are reports that the US and the EU are close to a deal involving 15% tariffs, but some products, like airplanes and spirits, might be exempt. To secure an agreement, the EU may need to strengthen its relationship with the Trump administration.

Market Implications

Following the advisor’s comments, derivative traders should brace for increased market volatility. With over $1.3 trillion in trade between the US and the EU every year, uncertainty over a potential 15% tariff will likely cause significant price fluctuations in key markets. This “will they or won’t they” situation is perfect for options traders. We suggest focusing on European stock indices, such as the Euro Stoxx 50 or Germany’s DAX, by buying volatility. Strategies like long straddles or strangles can profit from large price movements, whether there’s a relief rally from an unexpected deal or a sharp drop due to new tariffs. The Financial Times highlights that companies like Airbus and LVMH may be at risk, making their options valuable. This scenario is similar to the US-China trade war from 2018 to 2019, during which the CBOE Volatility Index (VIX) often rose above 20 due to negative news. Back then, markets would rally on any news of a “deal” and drop on tweets about new tariffs. We expect a similar trend, where sentiment may change quickly based on statements from officials like Navarro.

Currency Market Focus

The currency market, particularly the EUR/USD pair, will be a key focus in these developments. If a deal isn’t reached, as the advisor warned, it would likely put downward pressure on the Euro. Trading options on currency ETFs like FXE can be an easy and effective way to speculate on these tense negotiations. The main issue is what the EU will offer President Trump. Traders should watch official statements and news closely, as any indication of vague or “aspirational” goals from Europe without real concessions could provoke a negative reaction from the administration. Staying agile and ready for swift, headline-driven changes will be crucial in the upcoming weeks. Create your live VT Markets account and start trading now.

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