Insights 
VT 
Optimism Over US-China Trade Deal
During European trading hours, further trade deal announcements are anticipated, though exact partners remain undisclosed. The Federal Reserve maintains a focus on controlling inflation risk over employment, without plans to prematurely cut interest rates.
EUR/USD’s strength early in the week is buoyed by potential EU-UK trade announcements. The European Central Bank is likely to reduce interest rates due to growth and inflation concerns. US-EU trade talks are set, with the EU proposing to purchase US goods to reduce the trade deficit.
Trade Coordination Across The Atlantic
From the European perspective, strength in the euro appears tied not only to dollar weakness but also to regional developments. There’s chatter around a new round of EU-UK trade measures, which could lift investor sentiment. In parallel, the ECB is increasingly expected to pull back on rates sooner than previously thought, responding to slowing growth and deteriorating inflation figures. Such a policy divergence with the Fed can, at least temporarily, lend the euro an upper hand.
We also cannot overlook the marginal support the dollar gained from optimistic trade talk signals coming out of Washington, particularly statements made by Trump regarding renewed dialogue with China. However, these alone have not been enough to counteract the broader weight of fiscal and rate concerns. Additional details are expected to surface during the European session, although there’s no clarity on which countries may be involved next.
In the background, preparations on both sides of the Atlantic for formal US-EU trade coordination remain a key point of interest. The EU has floated proposals involving the purchase of US exports, likely aimed at rebalancing goods trade while avoiding new tariff disputes. These developments are worth tracking in real-time, especially as they could generate short bursts of volatility in an otherwise rate-driven market.
What this means for currency traders is fairly clear-cut: rate differentials remain the primary focus, alongside short-term political risk. With yield curves steepening in the US and talks of easing policy in Europe, the spread trade becomes more attractive. Efforts must go into reevaluating positions in light of central bank signalling and fiscal news flow, while keeping economic data releases in tight view. In this kind of environment, positioning should be nimble, reflecting not just headline sensitivity but the underlying yield response, which is proving to be immediate and forceful.
