FX alert: President Trump's bluff pays off

The ink’s barely dry on Trump’s latest trade reset with Europe, and already the market’s humming with euphoria. Equity futures on both sides of the Atlantic are higher, not because the deal changed the game—but because it didn’t blow it up. In today’s environment, less bad is the new bullish. The 15% baseline tariff pact doesn’t reverse the trend—it just pulls the pin on August 1’s tariff grenade and slides it gently back into the drawer. That alone is enough for risk to rally.

But now the spotlight swings sharply to the macro data flood ahead—because behind the soft handshake at the golf course is a much tougher read on inflation, jobs, and the Fed’s posture into September. For the dollar, this is where things get interesting.

Markets digested the US-EU deal with a casual shrug in FX, largely because the outcome was telegraphed midweek. The tariff structure—15% across the board with some glitzy promises to buy $750B of U.S. energy—is far from benign, but also far from the 30–50% scorched-earth scenario that had been on the table. It’s an uneasy truce, not a new world order.

Still, the FX market is about to be jolted awake by a data week that reads like a macro gauntlet: JOLTS on Tuesday, GDP on Wednesday, core PCE on Thursday, NFP on Friday. If core PCE ticks up to 0.3% MoM—as expected—then Powell’s patience will be justified, and the market’s hope for a September cut will fade faster than a risk-on rally on CPI day.

Throw in one-week carry at 4.37% and a low-volatility backdrop, and suddenly the dollar doesn’t look like a great short—or even a great funding leg. Barring a major surprise, DXY could quietly grind its way back toward the 98.75–99.00 zone in the days ahead. It won’t be flashy, but it could be relentless in a grinding way.

DAX futures popped 1.2% on the trade news, and euro bulls are spinning tales of clarity, stability, and a reopening of corporate confidence. Maybe. But this is less Versailles and more Versailles-lite—a deal made under duress, and one that doesn't solve the eurozone’s structural malaise.

Europe’s saving grace might come from within: high savings rates, inventory restocking, and rumblings of a fiscal pulse. Still, the data this week may undercut any hopes of immediate upside in EUR/USD. Second-quarter GDP is expected flat. Flash inflation is drifting below 2.0%. The market is pricing just a 15% chance of an ECB cut in September—but that feels too complacent. One soft print and the euro narrative could flip fast.

Spec positioning remains long EUR, and at a 2% annual cost to carry, the bar for upside is high. Without a dovish Powell to fan the flames, I see EUR/USD drifting below 1.1700, and wouldn’t be surprised to see a quick run to 1.1600 if the Fed holds its line and eurozone data disappoint.

Sunday’s deal with the EU wasn’t so much inked as chipped out of a bunker — hat-tipped on the president’s Scottish golf course with the flourish of a man who sees every negotiation as match play. Trump called it “the greatest deal of all time,” but traders know better: this wasn’t a treaty, it was a tap-in after the EU sliced its drive into the same rough Japan just crawled out of.

The structure? A 15% tariff on EU exports to the U.S., zero in return, plus $750 billion in U.S. energy buys, $600 billion in TBD “investment,” and a vague arms commitment — all wrapped in a bow of concessionary optics. In substance, it’s less of a trade pact and more of a reparations invoice. Europe got nothing but a reprieve from the threatened 30% cliff and a photo op it didn’t ask for.

But here’s the market rub: it was good enough. S&P futures barely flinched and by Monday, equities were back chasing record highs. Why? Because uncertainty evaporated. The smoke cleared, and while parts of the house may still be on fire, at least everyone knows where the exits are.