Synopsis:

Goldman Sachs sees short EUR/USD as the best FX trade to position for higher US tariffs on China, given the likelihood of broader FX volatility if China allows CNY to weaken. Long USD/CAD via options is also recommended as a relatively inexpensive hedge against lingering tariff risks on Canada.

Key Trade Ideas:

1️⃣ Short EUR/USD 📉 (Top Pick)

• Baseline: Further increase in US tariffs on China, potentially extending to EU autos.
• If China lets CNY weaken, it could trigger broader FX volatility, making EUR/USD an attractive short.
• With premium largely unwound, the risk-reward setup favors a move lower.

2️⃣ Long USD/CAD via Options 📈

• Not base case, but risk remains high.
• While markets have largely priced out Canada-related tariffs, Goldman sees higher odds (~40%) than the market (~20%).
• Options remain an inexpensive hedge to protect against a tariff escalation.

Conclusion:

Goldman sees short EUR/USD as the best G10 FX trade for rising US-China trade tensions, while long USD/CAD options provide a cost-effective hedge against renewed tariff risks on Canada.