French finance minister Eric Lombard recently spoke about the trade deal with the US. He called it the best compromise we can get, but also stressed the need for tariff exemptions for wines and spirits. Lombard’s remarks show a careful optimism, differing from the bleaker tone we’ve seen lately. He warned that the deal could have painful effects on the European economy if it goes through.

Trade Deal Framework

The new trade deal framework with the US is being called the best compromise. This wording, while positive, reveals underlying tensions and the risk of economic struggle in Europe. The market is cautious, with the Euro Stoxx 50 Volatility Index (VSTOXX) rising slightly to 16.5 after weeks of stability. Given the cautious tone and potential for talks to stall, it’s smart to pay attention to volatility. The VSTOXX is still well below the higher levels above 25 seen during the banking stress in early 2024, making implied volatility relatively inexpensive. Buying out-of-the-money puts on indices like the German DAX could be a smart and cost-effective hedge in the coming weeks. The focus on wines and spirits highlights European luxury and beverage stocks. Companies in this sector have performed well this year, but their gains seem fragile as tariff exemptions are still uncertain. We suggest selling call options against these stocks to generate income, betting that this tariff uncertainty will limit significant gains.

European Automotive Sector And Exchange Rates

Don’t forget the European automotive sector, which is always a sensitive issue in trade discussions with the US. We recall the market swings in 2018 and 2019, when German auto stocks reacted sharply to tariff news. The latest EU auto export figures to the US for June 2025 already show a 2.8% drop compared to last year, indicating that any bad news could seriously impact this sector. The EUR/USD exchange rate will serve as a key indicator of market sentiment regarding this deal. For most of July 2025, the pair has been stuck in a tight range around 1.09, reflecting market indecision. There’s a chance to use derivatives to bet on the euro weakening if the final deal terms appear more painful for Europe than currently anticipated. Create your live VT Markets account and start trading now.

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