EU Trade Commissioner Sefcovic is set to meet with US Commerce Secretary Lutnick. The EU is in regular communication with the US, focusing on finding a negotiated solution. While they are working toward a resolution through discussions, the EU is also preparing additional options, which may include further countermeasures.

Trade Solution Strategies

To carry out these countermeasures, the EU suggests merging two lists into one. These measures could involve tariffs and regulations like the Anti-Coercion Instrument (ACI). Both parties are looking for a compromise, and recent news of a US-Japan deal has brought some optimism to the markets. However, it’s important to note that Japan’s situation is different. Prime Minister Ishiba is under pressure to maintain political relevance. For more details, visit investingLive. Given the clear nature of the upcoming talks between Sefcovic and Lutnick, the best approach seems to be using options to trade on the expected volatility. The preparation for countermeasures indicates a significant market movement is likely in either direction. This makes long straddles or strangles on key European indices a smart strategy. Traders can benefit from sharp price changes, regardless of whether the news is good or bad. We see that market volatility appears low compared to the political risks. Europe’s main volatility index, the VSTOXX, has recently been around the 15 level, which is low by historical standards during times of trade uncertainty. This suggests that the market may be complacent, presenting an opportunity to purchase call options on the VSTOXX. Such options would likely increase in value if negotiations take a negative turn and countermeasures are announced.

Sectoral Impact and Precautions

It’s crucial to keep a close eye on sectors that could be affected by new tariffs, particularly European automakers. In 2023, Germany exported over €38 billion worth of vehicles to the United States, highlighting the financial stakes involved. Traders may want to buy put options on a German stock index or a European automotive sector ETF as a hedge or a speculation against a favorable outcome. This scenario resembles the trade disputes of 2018, which led to immediate spikes in market volatility and sharp downturns when tariffs were announced. While markets seem reassured by the recent US-Japan deal, we view the pressure on Ishiba as a unique situation. Furthermore, the EU’s new Anti-Coercion Instrument, which took effect in late 2023, provides a strong and untested tool for retaliation that the markets may not have fully accounted for. Create your live VT Markets account and start trading now.

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