EUR/USD moved towards 1.1725 following Donald Trump’s tariff threats, which weakened the US Dollar. The pair increased by almost 0.7%, as the proposed duties on European nations, associated with Trump’s interest in Greenland, prompted a broader Dollar sell-off.
The EUR/USD pair closed at 1.1724, having risen more than 0.69% for the second day. Trade tensions escalated with the White House’s threat of 10% tariffs on imports from eight European countries, impacting the S&P 500 and Nasdaq, which fell by 2.1% and 2.39%, respectively.
Global Bond Yields And Economic Data
Global bond yields surged, aided by Japan’s tax cut announcements. Japanese 40-year bond yields increased nearly 29 basis points to an all-time high. Despite robust US jobs data, it fell short of expectations, while European inflation figures revealed deeper deflation, although German economic sentiment displayed some recovery.
Additional events include Christine Lagarde’s ECB speeches and US housing data releases. The US Dollar Index dropped 0.58% to 98.56. New tariffs announced for February 1 on European countries may prompt the EU to consider compensatory tariffs worth €93 billion.
Technical analysis shows EUR/USD may pursue further gains, with recent highs at 1.1763 and resistance levels at 1.1750 and 1.1800. A decline below the 20-day SMA at 1.1697 might lead to lower targets.
Retaliatory Measures And Market Volatility
Looking back at the end of 2025, we saw a significant shock to the US Dollar when tariff threats were announced against several European nations. This political move caused a risk-off sentiment that sent the EUR/USD pair toward the 1.1725 mark. The immediate reaction was a spike in foreign exchange volatility and a drop in US stocks.
The situation has remained tense into the new year, as Brussels officially filed a €95 billion counter-tariff list with the World Trade Organization last week. This formal step confirms the EU’s retaliatory stance, keeping pressure on the Dollar and supporting the Euro. The new tariffs from the US are still slated for February 1, making the next two weeks critical.
This sustained uncertainty means we should expect volatility to continue. The Cboe EuroCurrency Volatility Index (EVZ), which measures implied volatility for the Euro, jumped to a 12-month high of 9.8 in late 2025 and is still holding above 8.5 today. Traders should consider buying options, like straddles, to profit from large price swings in either direction as headlines continue to drive the market.
These trade disputes are also influencing central bank expectations for the coming months. The CME FedWatch Tool now shows a 65% probability of a 25-basis-point rate cut by the Federal Reserve in its March meeting, up from just 40% a month ago. This growing expectation of looser US monetary policy should continue to weigh on the Dollar.
The EUR/USD is currently consolidating near the 1.1700 level, just above the key moving average we saw challenged late last year. Buying call options with a strike price of 1.1750 is an attractive strategy to capture potential upside if the pair breaks higher. Conversely, put options below 1.1650 could offer protection against a sudden reversal if trade negotiations take a positive turn.
