Geopolitical Thaw: Markets Rally as Trump Softens Stance on Europe

Global risk sentiment improved significantly on Thursday following a marked shift in tone from US President Donald Trump at the World Economic Forum in Davos. The easing of trans-Atlantic tensions has put a brake on the US Dollar's recent rally, while providing a floor for EUR/USD near the 1.1700 handle.

Trans-Atlantic Tensions Ease

In a speech that surprised many market participants, President Trump adopted a conciliatory tone toward the European Union, notably avoiding his usual threats of immediate tariff escalation. He further alluded to potential cooperation within the NATO framework, a pivot that was immediately cheered by equity markets, with Dow Jones Futures rising 0.29%.

For the Euro, this represents a reprieve. The single currency had been under pressure from fears of a renewed trade war. While EUR/USD remains capped below 1.1770 due to fundamental economic divergences, the removal of immediate “trade war” risk has prompted profit-taking on long USD positions.

Diplomacy in Motion: Russia-Ukraine

Adding to the “risk-on” mood are reports of intensified diplomatic activity regarding the Ukraine conflict. Moscow confirmed that President Vladimir Putin will meet with Trumps special envoy, Steven Witkoff, to discuss potential peace frameworks. Simultaneously, Ukrainian President Zelenskyy is set to meet Trump himself in Davos.

Trump has characterized a deal as “quite close,” urging both sides to seize the moment. While skepticism remains high given the stark differences in demands—Ukraine refusing territorial concessions and Russia demanding neutrality—the mere existence of high-level dialogue is reducing the geopolitical risk premium embedded in safe-haven assets like the Dollar and Gold.

Market Outlook

• EUR/USD: Neutral/Bearish bias remains technically, but immediate crash risk has subsided. Support at 1.1640 is critical.
• Equities: Positive reaction to reduced uncertainty.
• USD: Impact is mixed; reduced safe-haven demand weighs on DXY, but strong US data (GDP/PCE) continues to support the Greenback fundamentally.