FX alert: Diminishing returns at the tariff casino

EUR/USD is trading like a seasoned gambler who’s seen this game before—flinching at the opening bluff, only to return to the table with a cool hand. After an early gap lower in Asia on weekend chatter of a 30% US tariff on EU goods, the pair found its footing above 1.1660, refusing to fold. The market’s read: this isn’t the opening salvo of a trade war, it’s Trump-style brinkmanship—sound and fury meant to shake down concessions before the August 1 deadline.

Investors have grown numb to these volleys, no longer pricing in Armageddon with each tweet or tariff leak. Instead, the euro remains resilient, moving more in rhythm with hard data and issuance flows than the usual headline whiplash.

The dollar isn’t exactly hyped on trade theatrics—it’s watching Russia. Talk out of Washington points to a hardening stance on Moscow, not just diplomatically but economically, with Patriot missiles heading to Ukraine and the spectre of secondary sanctions on oil flows haunting importers like India.

Rumours of punitive 500% tariffs on enablers of Russian oil sales suggest the subsequent escalation won’t be a tweet, but a sledgehammer. Energy prices could spike, and with the US now an energy exporter, that’s dollar-positive fuel at the macro pump—especially against energy-import heavyweights in Europe and Asia.

Beyond geopolitics, the real catalyst risk this week lies with US CPI. Tuesday’s print is expected to firm to 0.3% MoM—a reminder that tariffs don’t vanish into the ether, they seep into sticker prices. If inflation surprises to the upside, it could put a dent in the 17bp of easing priced into the September FOMC and add ballast to the dollar’s recent recovery.

Technically, DXY has room to stretch toward 98.50—a gap-fill move that would align with a pickup in energy and rates volatility. The euro might not break down unless 1.1600 gives way on a close, but if that floor cracks, it’s a short runway to 1.1500

The broader setup? This isn’t a panic moment—it’s a tactical drift. Positioning, not panic, is driving FX. The euro is unwinding some of its spring exuberance, the dollar is finding its feet on geopolitics and CPI nose, and traders are treating tariff threats like what they are: ambient noise in the broader negotiation soundtrack.

Beneath the surface, though, the stage is shifting. If Russia's sanctions move from bark to bite—especially with energy as the transmission channel—then this could be more than a skirmish in the long war for macro dominance. Watch for volatility to stir from its summer nap. The tape’s calm, but the tide’s turning.