President Trump is proposing a 15-20% minimum tariff on all European Union (EU) goods. This rate differs from a previously considered 30% tariff, as mentioned in “the letter”.
Trump refuses to reduce the 25% sector duty on EU cars and is considering even higher reciprocal tariffs above 10%, regardless of any potential deals. The EU trade Commissioner gave a pessimistic report on recent talks in Washington to EU ambassadors.
Trump is against 0% tariffs and suggests a necessary tax on EU access to the US, ranging from 10% to 20%. There would be no tariffs on US exports, and national security is cited as the justification for these measures.
EU companies will not face tariffs on goods made and sold within the US. In the financial market, the EURUSD has decreased, testing the 100-hour moving average.
The currency pair’s decrease follows the failed rally between 1.1663 and 1.1691, observed at the 200-hour moving average. If it falls below the 100-hour moving average, it could reach another swing low at 1.1614 and 1.1563–1.1578, leading to a 38.2% retracement to 1.15372 from the May low.
Based on the President’s clear intentions, we believe this is not a short-term negotiating tactic but a fundamental policy shift. The push for a minimum 15-20% tariff, even after a potential deal, signals a sustained period of trade friction. Derivative traders should therefore position for prolonged uncertainty and a weaker European economic outlook.
The immediate reaction in the EUR/USD is our primary tell, and we should view rallies toward the 200-hour moving average as opportunities to initiate short positions. A break below the 100-hour moving average would confirm this bearish momentum. We will be targeting the swing low at 1.1614 initially, using put options or direct futures shorts on the Euro.
The scale of this threat cannot be understated, as total U.S.-EU trade in goods and services exceeded $1.3 trillion in 2022. A broad tariff would severely impact this flow, justifying a bearish stance on the common currency. The downbeat assessment from the Commissioner in Washington reinforces that a diplomatic solution is not imminent.
Beyond currency, we see a clear opportunity in equity derivatives, specifically by buying put options on European indices like Germany’s DAX. The administration’s refusal to reduce the 25% duty on cars makes German automakers exceptionally vulnerable. This sector is a cornerstone of the German economy and a major exporter to the United States.
Historically, German carmakers like BMW and Mercedes-Benz rely on the U.S. for a significant portion of their high-margin sales, often between 15% and 20% of their global total. The national security justification gives the White House a powerful tool to implement these duties quickly. This makes puts on these specific auto stocks a direct and potent strategy.
We must also anticipate a significant rise in market volatility. During the 2018-2019 U.S.-China trade dispute, the VIX index, a key measure of expected volatility, spiked over 40% on multiple occasions following tariff announcements. We should therefore consider buying call options on volatility indices to profit from the inevitable market swings these headlines will create.
The strategy is to build positions as the technical picture confirms the fundamental view. We will add to our EUR/USD shorts on a confirmed break of the 100-hour moving average. Our focus remains on the downside targets outlined, including the 38.2% retracement level near 1.1537.
