US and the European Union have reached a ‘framework’ trade deal, impacting the EUR. The important aspect of the deal is the 15% rate, with further specifics to be provided soon.
The early morning trade has seen the EUR marked higher amid thin market liquidity. There is also an expectation that the US and China will extend their tariff ceasefire for an additional three months, according to a report from the South China Morning Post.
Indicative rates reflect these developments, as reported on 28 July 2025. Market participants are warned of potential price swings until more Asian centres open to improve liquidity.
Based on the update from Mr. Sheridan, the immediate action for derivative traders is to price in lower uncertainty. This framework deal removes a significant tail risk, so we should expect implied volatility on EUR/USD options to drop from recent levels around 9% towards the 6-7% range over the coming weeks. We believe selling volatility through strategies like short straddles or strangles could be profitable as the market digests this new stability.
This news is fundamentally positive for the Euro, as it provides a much-needed boost to the export-heavy Eurozone economy. Therefore, we are looking to establish long EUR exposure, perhaps through call options to limit downside risk while capturing the expected upward momentum. The 1.08-1.09 range for EUR/USD now looks like a floor, with a clear path toward 1.12.
We will be closely watching the next German ZEW Economic Sentiment survey for confirmation of this improved outlook. The indicator recently posted a reading of 47.1, and this trade resolution should push sentiment well above 50, signaling renewed optimism in the Eurozone’s largest economy. A strong reading would validate a more aggressive bullish stance on the single currency.
From a monetary policy perspective, this development could alter the European Central Bank’s path. Markets have been pricing in two more rate cuts this year, but with trade friction easing, the central bank may pause after just one. This repricing of rate expectations will provide a strong tailwind for the Euro against the dollar.
We’ve seen this pattern before during the trade disputes of 2018-2019, where de-escalation led to sustained risk-on rallies. Recent CFTC data shows that speculative net long positions in the Euro have been decreasing, sitting at just over 40,000 contracts, which is relatively light. This leaves significant room for traders to re-enter long positions, potentially fueling a sharp short-covering rally.
The reported ceasefire extension with China further solidifies this positive risk sentiment across global markets. This development reduces another major source of economic uncertainty, which tends to benefit pro-cyclical currencies like the Euro. This reinforces our view that the path of least resistance for EUR/USD is higher in the medium term.
