Insights 
VT 
A US federal appeals court has ruled that Trump’s reciprocal tariffs are illegal, a decision likely to move to the US Supreme Court. This ruling adds uncertainty to the market, leaving the dollar slightly lower at the start of the week.
Despite this, the USD remains relatively stable with minor changes noted. The EUR/USD has risen by 0.3% to 1.1720, having hit a high of 1.1733 earlier, but facing resistance around 1.1730-40.
Gold and Market Movements
Other currencies show minimal movement, partially due to US markets being closed for a long weekend. Gold emerges as a focal point for traders as the week begins.
With the US Supreme Court set to review the legality of past tariffs, we are bracing for a period of heightened uncertainty. The dollar’s quiet start to the week is deceptive, as this legal battle injects significant political risk into currency markets. We should not interpret the current calm as a sign that the market has fully priced in the potential outcomes.
This development points toward a potential spike in currency volatility, which has been hovering near multi-year lows according to the Deutsche Bank Currency Volatility Index (CVIX). Given that implied volatility is relatively cheap, now is an opportune time to consider buying options straddles on major pairs like EUR/USD or USD/JPY. This strategy allows us to profit from a large price swing in either direction without having to predict the Supreme Court’s eventual decision.
We are reminded of the sharp, headline-driven currency movements during the 2018-2019 trade disputes, where pairs like USD/CNY saw dramatic swings on tariff news. The current market seems to be underestimating the potential for a similar reaction, especially since the US August jobs report from last month already showed a slight slowdown in hiring. This new legal challenge to a key policy tool could amplify any existing economic weakness and weigh on the dollar.
Strategic Positioning for Traders
For EUR/USD specifically, the pair is already testing resistance near 1.1740. Traders who believe this ruling will structurally weaken the dollar’s standing could look at buying call options with strike prices above this level. This offers a limited-risk way to position for a breakout should the legal uncertainty escalate.
The move towards safe-haven assets is also a key theme, as gold is already showing signs of life. With gold futures trading around $2,450 an ounce, the uncertainty surrounding the dollar makes call options on gold or gold-backed ETFs increasingly attractive. This provides a direct hedge against the political instability this court case introduces into the financial system.
For corporations with significant dollar-denominated receivables or payables, it is imperative to review hedging strategies. Locking in forward rates with currency futures or using flexible options collars can protect balance sheets from adverse moves. We anticipate this story will dominate market chatter for the next several weeks, making proactive risk management essential.
