Market mayhem on (another) manic Monday

• Canada’s PM Trudeau says Trump will pause Canada tariffs for at least 30 days
• USD close flat on the day after spiking higher, but not making new cycle highs
• Wall Street closes down, pares losses after Trump delays Mexico tariffs
• Gold hits another fresh record high at $2830 on haven buying

FX: USD whipsawed as it gapped higher when it opened in Asia to a high of 109.88, before turning lower through the day. The Mexican tariff delay agreement for one month saw more selling as the index closed virtually flat. News after the US close of a Canada tariff one-month delay saw more selling. The only market driver at the moment is tariff talk. Even the positive ISM manufacturing data, which printed in expansionary territory for the first time in 26 months did little to move the buck.

EUR gapped lower before paring losses through the day. Again, the Mexican deal helped all the majors against the dollar. But media reports late on in the day reckoned Trump is considering 10% tariffs on the EU. The major failed to close the gap lower intraday but closed above 1.03.

GBP was a relative outperformer, aside from the yen, as it is seen as very unlikely to get hit with major tariffs, as Trump alluded to during the day. The US runs a small trade surplus with the UK overall and the UK’s trade advantage lies in services, rather than goods. Cable did close the opening gap towards the end of the session, settling above 1.24.

USD/JPY was the leading major on the day though it printed a doji by the end of the day. The safe haven nature of the yen appealed to investors amid the deep uncertainty over a potential trade war. Support at 153.70/78 and then 153.40, ahead of the 200-day SMA at 152.80.

AUD turned around strongly after selling off aggressively in Asia on weak sentiment and sinking stocks. A fresh low at 0.6087, last seen in April 2020, printed, but prices closed strongly near their highs and crucially above the long-term low at 0.6169. USD/CAD spiked higher to a multi-year top at 1.4792 before moving lower through the day. The Mexico deal caused further selling in the pair before news of a Canada one-month tariff pause after the US close caused more dumping of the major. We are now back in the recent range.

US stocks: The benchmark S&P 500 closed in the red, down 0.76% at 5,995. The tech-heavy Nasdaq settled lower, down 0.84% at 21,298. The Dow Jones finished down 0.28% at 44,422. Cyclicals led the gains with consumer staples, utilities, energy, healthcare and materials in positive territory.  Tech was the laggard, down 1.8% as a sector. Tesla closed down 5.17% on tariff war concerns. Other automakers like Ford and GN were sold. Apple shares slid 3.4%, the steepest drop on the Dow, while Goldman Sachs and Caterpillar were also among the worst performers.

Asian stocks: Futures are in mixed. Stocks were sold on Trump’s tariff action over the weekend. The ASX 200 slid with all sectors suffering losses while mixed data did little to spur demand. The Nikkei 225 slumped with Japanese automakers notably spooked by tariff jitters. The Hang Seng also fell on return from the Chinese New Year holiday and after disappointing Chinese Caixin Manufacturing PMI. The mainland returns on Wednesday.

Gold broke higher again to post a new all-time top at $2830. The precious metal had initially sold off as the dollar surged and possible profit taking was taking place to fund margin calls. But as USD strength eased, bugs stepped in to push gold north.

Day Ahead – Turnaround Tuesday? (late Monday in fact!)

Markets are exceptionally volatile at the moment which makes for great trading opportunities. Many will say tariffs were coming, it was just a matter of time. But the speed, scope and breadth did still shock, with sharp price action from yesterday’s open highlighting this acute surprise. Risk off in FX meant growth-sensitive AUD and NXD particularly suffered. The flip side saw the yen do well and 154 in USD/JPY needs to be broken for more downside. We like this short with the BoJ potentially live with more policy action amid elevated inflation in the coming months.

But the turnaround during just after the US session open and close emphasizes the current environment. CAD and MXN led the charge, with other majors filling their opening gaps. This is bullish with 21 in USD/MXN and 1.4689 in USD/CAD remaining as key resistance levels. We wrote about these in our Week Ahead article. We are watching for more headline havoc, with Europe potentially next in the crosshairs. We think Trump is going hard and “maximalist” to get the best deals as quickly as possible. Trading around this and using long-term levels to fade over extended moves is working well so far.

Chart of the Day – Bullion’s bullish breakout continues

We wrote just over two weeks ago about how gold was breaking out of a bullish consolidation pattern and would likely make fresh record highs. It’s been a textbook move higher with minor flag patterns and further upside. Safe haven demand has helped, while a dollar pulling back yesterday below previous cycle highs saw added buying in gold. China’s recent central bank buying is a long-term driver, which comes after a six-month pause. There are still roughly two Fed rate cuts priced in for 2025, with the first one set to kick off in July. The previous record highs at $2,790 could now act as initial support. The 21-day SMA sits at $2721, where the late November and mid-December highs reside.

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