Any compromise between Trump and EU leaders could lead to retracement of EUR/USD gains

As was the case following Liberation Day, the euro was one of the bigger winners in G10 FX on Tuesday, with the common currency seemingly again taking on a de facto safe-haven status as investors look for alternatives to the dollar.

At one stage, EUR/USD was testing the 1.175 level, but it has since retraced some of its gains. Headlines that Danish pension fund AkademinerPension was planning to pull its holdings of US Treasuries yesterday gained some traction in the news, but we see this as more of a PR stunt and political statement that anything else, particularly as its holdings of US bonds are miniscule in the grand scheme of things, and there would never been any real threat to yields or the US economy, even if others were to follow suit.

Any signs of a compromise between Trump and EU leaders in the next few days will be key for the common currency, as this could lead to a retracement in some of the recent gains in EUR/USD. ECB President Lagarde is set to speak later today, and the preliminary January PMIs will be released on Friday morning. These events will, however, be almost entirely overshadowed by geopolitics.