Donald Trump is reportedly looking to impose penalties on the EU. His concerns focus on digital taxes, services legislation, and market regulations. He shared his thoughts on Truth Social, warning of possible “consequences” if these issues continue. Trump also announced the immediate firing of Fed Governor Lisa Cook in a letter on Truth Social. Cook responded by saying she wouldn’t resign, claiming that Trump does not have the authority to remove her.

Market Stability Concerns

We face two major challenges regarding market stability: one affects international trade, and the other threatens the independence of the Federal Reserve. Investors should prepare for increased volatility, as political news creates uncertainty. The VIX has been around 14 for the last month, but it could easily rise to 20, similar to what we saw during the 2025 debt ceiling debates. Trump’s suggested penalties against the EU could hurt U.S. tech and digital services companies with significant business in Europe. These companies make up over 25% of the S&P 500’s market value. It may be wise to consider protective put options on the Nasdaq-100 index. This strategy echoes the past; in 2018-2019, tariff threats often led to sell-offs in sectors with international exposure. This trade conflict also poses significant risks to currency markets, specifically the EUR/USD pair. Fears about the EU’s economic future could push this pair below the crucial 1.05 support level, which it has maintained for most of 2025. Traders might think about buying put options on the Euro, anticipating a decline as this situation unfolds.

Impact on Bond Markets

The attempt to fire a Fed governor is particularly concerning as it undermines the central bank’s credibility. This could disrupt interest rate expectations and lead to increased volatility in the bond market. Currently, the market expects a stable federal funds rate for the rest of the year, but this situation could change risk perceptions and cause unpredictable movements in Treasury yields. Create your live VT Markets account and start trading now.

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