Trump Tariff Fears Subside as Markets React to Potential Deal with Canada and Mexico
Markets Spring Back to Life as Tariff Fears Ease
The recent turmoil in global markets, sparked by fresh tariffs on Canadian and Mexican imports, appears to have been temporarily alleviated following a surprise statement from U.S. Commerce Secretary Howard Lutnick. The comments, aired on Fox Business late Tuesday, suggested that Donald Trump may be open to compromises with both nations regarding tariffs.
Markets reacted swiftly, with equity index futures surging higher and bond yields sliding as investors began to unwind their earlier anxieties. Currencies that had been battered by tariff uncertainty extended their gains, driven in part by a 1.3% surge in the EUR/USD exchange rate.
This respite from the pressures associated with tariffs may provide some temporary relief for risk assets ahead of key U.S. data releases on Wednesday, including the ISM services PMI and ADP jobs report, which are crucial indicators just two days before the closely watched non-farm payrolls. Previously, weakening economic data and growing fears over how tariffs might choke off growth had weighed heavily on risk assets, leading some to lose significant ground in their positions.
Benchmark Bond Futures Suggest a Turning Point for Yields
Source: TradingView
The chart above plots U.S. 10-year Treasury note futures prices over the past period. Prior to Tuesday, this market sector had attracted many investors betting on lower yields for long bond positions. However, recent price and momentum indicators are now suggesting that we may have reached a near-term top in bond prices, which could signal higher yields instead.
The failure of U.S. Treasury note futures to break above their December 2024 swing highs was followed by a sharp reversal, resulting in a bearish engulfing candle on the daily timeframe. Although several key support levels are now situated just below current price ranges, the close beneath the 200-day moving average and RSI (14) breaking its uptrend suggest growing risks that the long trend in bond yields has reached its end. Consequent to this analysis, any trades premised on lower U.S. Treasury yields may require immediate reassessment.
EUR/USD Displays Strong Bullish Run
Source: TradingView
On Tuesday, traders began eyeing a potential top break in EUR/USD after it signaled at lower levels of 1.0520-30 and technical buying gained pace beneath 1.06 as dollar weakness combined with military expenditure rises throughout Europe to encourage gains for the single currency.
This marked an early signal of potential upward momentum following last week’s downtrend, although it also indicated caution should be exercised due to resistance lingering at levels above, such as that found around 200- day MAs (moving averages) and next support layers including key resistance areas around 1.06 and 1.0668, after which it may need another boost from fundamental data releases like upcoming jobs or services number updates in Eurozone.
USD/JPY Sees Significant Price Movement
Source: TradingView
Given US Commerce Secretary’s recent statement indicating higher US imports may be considered while negotiating tariffs possibly leading stronger dollar flows into the market again (even though it currently appears less aggressive), there seems an excellent basis for expecting USD/JPY bounce; if one considers this context then past week when the latter was observed plummeting below previous year highs near 148 and 149 areas – now they may be due to rebound up wards towards resistance at YEN 151.
Even though trading hours were quite turbulent yesterday resulting in some erratic swings especially down side of this pair going as low as just above mentioned support price level then followed significant upward revisions indicating renewed investor interest; yet momentum metrics remains moderately optimistic indicating possibility further upside in near term rather than giving up to losses immediately.
S&P 500 Futures Rebound but Technical Outlook Remains Negative
S&P 500 futures bounced off the day after breaching long-standing uptrend support, briefly dipping below a key horizontal level of 5808 before closing higher. Without considering Lutnick’s latest statements that somewhat alleviated concerns about new tariffs, overall technical indicators were largely bearish. The closing price through this important zone combined with subsequent low below it along RSI (14) breaking trendline suggest short-term downtrend is unfolding.
In the face of an apparent bearish pattern, one cannot dismiss potential upside moves at current levels where 5820 still acts support level and nearby topside highs above mentioned could serve as reference points prior further decline would open possibility testing area roughly in region between 5700 – 5724.
