President Trump is suggesting a minimum tariff of 15-20% on all goods from the European Union (EU). This is a change from the previously discussed 30% tariff mentioned in “the letter.” Trump is not planning to lower the 25% tariff on EU cars and is even considering higher reciprocal tariffs above 10%, regardless of any potential agreements. The EU trade commissioner reported pessimism about recent talks in Washington to EU ambassadors. Trump opposes 0% tariffs and wants a tax on EU access to the U.S., ranging from 10% to 20%. There will be no tariffs on U.S. exports, with national security being offered as the reason for these measures. EU companies will not face tariffs on goods produced and sold in the U.S. In financial markets, the EUR/USD exchange rate has fallen, testing the 100-hour moving average. The drop in the currency pair follows a failed rally between 1.1663 and 1.1691, seen at the 200-hour moving average. If it falls below the 100-hour moving average, it could reach another low at 1.1614 and 1.1563-1.1578, which would be a 38.2% retracement to 1.15372 from the May low. Given the President’s clear intentions, we believe this is more than just a short-term negotiating tactic; it signals a real policy change. The push for a minimum 15-20% tariff, even after a possible deal, indicates a long period of trade tension. Traders should prepare for ongoing uncertainty and a weaker European economic outlook. The immediate response in the EUR/USD exchange rate is crucial. We should view any rises towards the 200-hour moving average as chances to put on short positions. A drop below the 100-hour moving average would confirm this downward trend. We will initially target the swing low at 1.1614, using put options or direct futures shorts on the Euro. This situation is serious, as U.S.-EU trade in goods and services topped $1.3 trillion in 2022. A widespread tariff would greatly affect this trade flow, which supports a bearish view on the Euro. The negative assessment from the Commissioner in Washington suggests that a diplomatic solution is not close. Beyond currency, we see a clear opportunity in equity derivatives, especially by buying put options on European indices, like Germany’s DAX. The administration’s refusal to lower the 25% tariff on cars puts German automakers in a vulnerable position. This sector is essential to the German economy and a major exporter to the U.S. Historically, companies like BMW and Mercedes-Benz rely on the U.S. for a significant share of their sales, often between 15% and 20% of their global total. The national security justification gives the White House the power to impose these tariffs quickly, making put options on these specific auto stocks a strong strategy. We also expect increased market volatility. During the 2018-2019 U.S.-China trade dispute, the VIX index, which measures expected volatility, shot up over 40% several times after tariff announcements. Therefore, we should consider buying call options on volatility indices to benefit from the expected market swings. Our strategy will be to build positions as technical evidence backs up our fundamental view. We will add to our EUR/USD shorts upon a confirmed break of the 100-hour moving average. Our focus remains on the downside targets, including the 38.2% retracement level near 1.1537.

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