The EU is considering countermeasures to US tariffs while pursuing a negotiated agreement.
by VT Markets
/
Jul 21, 2025
The EU aims to reach a deal with the US by August 1. At the same time, it is reviewing possible counteractions against US tariffs.
Right now, the proposed retaliation targets about €72 billion of US goods. Discussions continue, and only 11 days remain until the deadline.
Meeting In Berlin
Later this week, German Chancellor Merz and French President Macron will meet in Berlin. They plan to continue their talks about tariffs after discussing them over the weekend.
The rising discussions of countermeasures may lead to more market volatility. The EURO STOXX 50 Volatility Index (V2X) has been trading below 15, making options that benefit from increased uncertainty seem appealing. This situation offers a good chance to buy protection or bet on market fluctuations before the deadline.
Looking back at the US-China trade tensions from 2018-2019, we observed the VIX index jump over 40% within days after tariff increases. If a deal isn’t reached by the August 1 deadline, European markets could react similarly. We expect that breakdowns in negotiations will hit export-heavy indices like Germany’s DAX particularly hard.
Opportunities In Currency Derivatives
Given the potential size of the retaliation, we are focusing on protective put options for European car and luxury goods sectors. These industries often face challenges in trade disputes and saw their stocks drop by 5-10% during previous tariff threats. The upcoming meeting between Merz and Macron will be crucial in determining how coordinated and forceful the response may be.
The uncertainty surrounding a deal also opens doors in currency derivatives, especially concerning the EUR/USD pair. If tensions escalate, the Euro could weaken, as a trade dispute may harm the EU’s growth outlook more than the US’s. We see value in buying EUR/USD put options with expiration dates after the August deadline to protect against negative outcomes.
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by VT Markets
Jul 21, 2025
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