A U.S. federal appeals court has declared that Trump’s reciprocal tariffs are illegal. This decision may be taken to the U.S. Supreme Court. As a result, there is now more uncertainty in the market, causing the dollar to dip slightly at the beginning of the week. Despite this dip, the USD remains fairly stable, showing only minor changes. The EUR/USD has increased by 0.3% to 1.1720, reaching a peak of 1.1733 earlier, but is facing resistance in the 1.1730-40 range. Other currencies are also experiencing minimal changes, partly because U.S. markets are closed for a long weekend. Gold is gaining attention as the week kicks off. With the U.S. Supreme Court set to review the legality of previous tariffs, we should prepare for increased uncertainty. The dollar’s slow start this week may be misleading, as the ongoing legal issues add significant political risk to currency markets. It’s important to remember that the current calm does not mean the market has fully accounted for possible outcomes. This situation may lead to a rise in currency volatility, which has been at multi-year lows according to the Deutsche Bank Currency Volatility Index (CVIX). With implied volatility relatively low, now could be a good time to buy options straddles on major pairs like EUR/USD or USD/JPY. This approach allows for profit from large price movements in either direction without needing to predict the Supreme Court’s final decision. We recall the sharp currency movements during the 2018-2019 trade disputes, where pairs like USD/CNY experienced significant swings based on tariff news. The current market might be underestimating the potential for similar reactions, especially since last month’s U.S. jobs report already indicated a slowdown in hiring. This new legal challenge could amplify any existing economic weaknesses and pressure the dollar further. For EUR/USD, the pair is currently testing resistance near 1.1740. Traders who think this ruling will weaken the dollar could consider buying call options with strike prices above this level. This strategy limits risk while positioning for a breakout if legal uncertainties increase. The move toward safe-haven assets is another key theme, with gold showing signs of strength. Gold futures are trading around $2,450 an ounce, making call options on gold or gold-backed ETFs more appealing as a hedge against the political instability that this court case introduces into the financial system. For companies with significant dollar-based receivables or payables, it is crucial to review hedging strategies. Locking in forward rates with currency futures or using flexible options collars can help protect balance sheets from unfavorable shifts. We expect this issue will remain a major topic in the market for the next few weeks, making proactive risk management essential.

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