The recent trade deal between the US and EU sets a baseline tariff at 15% and includes a commitment to buy US goods and energy. This is better than the previously suggested 30-50% rates, though it still resembles earlier discussions about universal tariffs. Markets expect a slow August while waiting for results from a pharmaceutical trade probe. Trade deals with Asia, Mexico, and Canada are still on the table, and European leaders believe this new agreement could drive more business investments.

Upcoming US Data and Market Predictions

Important US data, like job reports and GDP figures, may impact the dollar. The Federal Reserve is likely to keep interest rates steady, making a September cut less likely. With the data calendar clearing, markets expect a quiet August. The dollar might consolidate and could move back towards the 98.50/99.00 range, depending on US data outcomes. The current one-week rates make the dollar less appealing for funding. We think the improved US-EU trade terms reduce immediate risks for European stocks. For example, after the US lifted steel and aluminum tariffs in late 2021, the Euro Stoxx 50 index saw stability. This suggests that selling out-of-the-money puts on European indices could be a smart way to earn earnings.

Anticipating Lower Market Volatility

We expect lower market volatility, which is typical for August. The CBOE Volatility Index (VIX) is currently around 13, below its historical average, supporting the idea of a quieter market. This environment favors strategies that profit from time decay, like selling iron condors on broad market indices such as the S&P 500. Positive US economic data will likely back the central bank’s current policies. Recent reports indicate that Non-Farm Payrolls added 272,000 jobs, far exceeding expectations. This makes a September rate cut very unlikely. The CME FedWatch tool shows over a 90% chance that rates will remain steady at the next meeting. Given strong economic indicators, we expect the US dollar to stay strong, making a significant drop below 104 on the DXY index unlikely. Traders might consider selling short-dated put spreads on dollar-tracking ETFs to take advantage of this support level. The current interest rate difference continues to make the dollar an unattractive funding currency for carry trades. Create your live VT Markets account and start trading now.

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