EUR/USD fell after opening with a bullish gap, but stayed in positive territory near 1.1720 during Asian trading on Monday. The move came as the euro faced pressure linked to new US trade actions.
President Donald Trump said the US will raise tariffs on EU cars and trucks to 25% from 15% this week, citing alleged breaches of a trade deal. He also warned that EU-made vehicles would face higher duties unless production shifts to US plants.
Euro Under Renewed Trade Pressure
The European Commission rejected the breach claim and said it is complying with last summer’s agreement. It said it would defend EU interests if the US violates the deal.
The pair also lost ground as the US dollar reduced earlier losses amid higher risk aversion tied to tensions in the Middle East. Bloomberg reported on Sunday that Trump said the US will start guiding some neutral ships trapped in the Persian Gulf out through the Strait of Hormuz starting Monday.
Ebrahim Azizi, a former commander in Iran’s Islamic Revolutionary Guards Corps and head of the parliamentary National Security and Foreign Policy Committee, said US interference in the new maritime regime of the Strait of Hormuz would be seen as a ceasefire violation. He said the Strait of Hormuz and the Persian Gulf are not a place for rhetoric.
We recall the sharp EUR/USD depreciation last year when trade tariff threats and Middle East tensions flared up, pushing the pair around the 1.17 mark. That period of volatility serves as a critical reminder of how quickly geopolitical risk can impact currency markets. With the pair currently trading much lower near 1.08, the memory of that instability should guide our strategy for the coming weeks.
The sudden risk aversion we saw in 2025 caused foreign exchange volatility to surge, with indicators like the MOVE index briefly jumping over 140. This highlights the value of using options to protect against similar unforeseen political headlines. We believe traders should consider buying long-dated puts on EUR/USD to hedge against downside risks, especially as political rhetoric heats up again.
Energy Shock Hedging Considerations
The escalation in the Strait of Hormuz last year also triggered a brief spike in Brent crude prices above $100 a barrel, a pattern we have seen before during regional conflicts. The Eurozone’s heavy reliance on imported energy makes the euro particularly vulnerable to these oil supply shocks. Therefore, holding positions that benefit from higher energy prices, such as call options on WTI or Brent futures, can act as an effective indirect hedge against euro weakness.
While those specific geopolitical shocks have faded, the underlying economic pressure on the euro remains. With the latest April 2026 Eurostat data showing inflation at 2.4% versus a stickier 2.9% in the US, the Federal Reserve has less room to cut rates than the European Central Bank. This fundamental divergence continues to suggest the path of least resistance for EUR/USD is lower, making bearish derivative structures attractive.
