Trump Tariffs: How are markets reacting? Here are 3 lessons for traders

• Starting Feb 4th: 25% tariffs on Canada and Mexico; 10% on China
   
• Dollar index (USDInd) returns towards 2-year high around 110.0
   
• Canadian Dollar (CAD) tumbles to weakest against USD since 2003
   
• NZD, AUD – China proxies - lead G10 declines against US dollar
   
• Mexican Peso (MXN) sinks to near 3-year low (since March 2022)
   
• Offshore Chinese Yuan (CNH) down 0.3%; all Asian currencies lower vs. USD
   
• Gold falters from record high; US crude oil pares initial spike
   
• US, European, Chinese stock indexes gapped down
   
• Bitcoin briefly sank below $92k; smaller cryptos see double-digit declines
   
• 3 Lessons: Traders must stay alert, have adequate capital, and move fast to seize on potential market opportunities

 

President Trump is following through on his tariff threats!

Starting 12:01 AM Eastern Standard time (5:01 AM GMT) on February 4th, 2025, the following levies will be imposed on US-bound imports from:

• Canada = 25% (except energy products)

• Mexico = 25%

• China = 10%

Also, President Trump warned that tariffs against the EU “will definitely happen”.

Although POTUS intends to hold talks with Canada and Mexico later today, it would require something dramatic over the coming hours for Trump to reverse his decision before 12:01 AM EST.

The prospects of tit-for-tat trade wars, and a souring global economy, are hurting riskier assets across global financial markets.

 

 

How are markets reacting?

February has indeed kicked off with a bang, considering the incoming economy-dampening tariffs:

 

Currencies:

• The US dollar index (USDInd)

  • soared back closer to its 2-year high around the psychological 110.0 mark.
     
  • skyrocketed as much as 1.3%, and if it holds, would be its biggest one-day gain since November 2024.
     
  • US dollar is widely seen as a "safe haven", which helps protects investors' wealth during times of heightened fear and uncertainty.
     
  • Trump's tariffs are expected to reignite US inflation.
    
    - reawakened inflation may prevent the Federal Reserve from lowering US interest rates.
    
    - US dollar tends to strengthen when US interest rates remain higher than its major peers (Euro, UK, Canada, etc.)

 

• Canadian dollar (CAD)

  • tumbled to its weakest levels since April 2003.
     
  • USDCAD is climbing 1.5% (stronger US dollar, weaker CAD), getting within a few pips of the 1.4800 level.
     
  • biggest loser among G10 currencies against the US dollar, down 2.2% so far in 2025.

 

• AUDUSD and NZDUSD

  • biggest G10 losers vs. USD today
     
  • The Australian Dollar (AUD) and New Zealand Dollar (NZD) are now weaker by 1.27% and 1.37% against the US dollar respectively.
     
  • Antipodean currencies are widely seen as G10 proxies to China, given that the world’s second-largest economy, is the top trade partner for Australia and New Zealand respectively.

 

All G10 currencies initially weakened by over 1% against the US dollar today ...

... except for safe havens Swiss Franc (CHF: down 0.7%), and the Japanese Yen (JPY: down 0.3%) at the time of writing.

 

• Mexican Peso (MXN)

  • worst-performing LatAm currency today, down 2.2% against US dollar so far
     
  • 2nd-worst currency in the world against US dollar today (second to the Vanuatu Vatu, down 2.5%), as tracked by Bloomberg
     
  • down 1.7% year-to-date

 

• Chinese Yuan (CNH)

  • down 2.2% against US dollar today
     
  • Onshore Yuan (CNY) due to resume trading on Tuesday, Feb 4th - after Chinese New Year break

 

 

 

Metals/Commodities:

• Gold

  • XAUUSD is holding steady, despite initially falling about 0.5%
     
  • demand for "safe havens" is keeping bullion around its record high around $2800 posted just this past Friday, Jan 31st.
     

However, with major G10 currencies weakening against the stronger US dollar ...

FXTM’s new, non-USD Gold pairs are actually gaining!

• XAUCNH: up 0.2%
   
• XAUGBP: up 0.6%
   
• XAUEUR: up 1.0%
   
• XAUAUD: up 1.1%

 

• Crude oil

  • Initially, US crude surged by as much as 1.5% (using FXTM’s prices), at the thought of tariffs being imposed on suppliers of crude to the US:

    - 10% tariff on Canada’s 4 million barrels of crude shipped per day to the US
    
    - 25% tariff on Mexico’s 500,000 barrels of crude shipped per day to the US
     

  • Crude, which measures US-only prices (as opposed to Brent oil, which is the world's benchmark for oil prices), then pared its initial spike.
     
  • With imported crude set to carry a heftier price tag, that is spurring on demand for US onshore oil – hence the initial spike up for Crude prices.

 

 

 

 

Stock Indexes:

• US stock indices

  • US500, US30, NAS100, US400, RUS2000 – all gapped down.
     
  • US stock indexes are hurtling towards their respective year-to-date lows, these stock indexes are about to test widely-followed technical indicators known as simple moving averages (SMAs) for immediate support:
    
    - US500 and NAS100: 100-day SMA
    
    - US30: 50-day SMA
    
    - RUS2000: 200-day SMA

 

• European stock indexes

  • EU50 gapped down from a 24-year high
     
  • GER40 and UK100 tumbled away from their respective record highs
     
  • FRA40 falls from 7-month high (since June 2024)

 

• Asian stock indexes

  • JAP225, CHINAH, CN50, and HK50 – also gapped down
     
  • still adhering to the sideways price range since mid-2024.

 

 

 

Cryptocurrencies:

• Bitcoin

  • briefly dipped below the $92,000 level – its lowest levels since mid-January.
     
  • However, at the time of writing, the world’s oldest crypto is now attempting to keep its head above $94k.
     

• Smaller cryptos

  • Ethereum, Litecoin, Ripple, Bitcoin Cash, Dogecoin, etc. – are falling between 10-15% respectively.

 

 

 

Trump tariffs: 3 lessons for traders in navigating market volatility

Beyond the bloodbath, perhaps what’s more surprising is how markets actually reacted on this Monday, Feb. 3rd

After all, President Trump has made no secret of his tariff threats.

Markets are perhaps guilty of being too complacent over Trump's tariff threats, hoping that Trump 2.0 would have adopted a more restrained approach with regards to his protectionist policies, and incurring less damage towards the global trade order.

Clearly, those rose-tinted glasses have been smashed over the weekend.

These incoming tariffs show that President Trump may be willing to incur some economic pain in forcing other countries to fall in line with his policies.

 

Still, amid the market turmoil, here are some crucial lessons for traders in navigating these Trump-fuelled market volatility:

 

1) Stay Alert

President Trump is of course renowned for his penchant to shock markets.

Hence, it’s imperative that traders and investors stay up to date with his next moves, including threats made verbally or via social media posts, as well as official announcements.

 

2) Manage Risks

• Diversification: having positions across various instruments/assets to reduce risks and potentially offset losses).
   
• Adequate Capital: ensure that you have enough cash to either keep your positions open, or live to see another day, when prices go against you. Never risk all your capital into one single trade, especially given these highly uncertain times.
   
• KYRA - Know Your Risk Appetite: It’s important to know how much you’re willing to lose, in exchange for the chance at potential profits, before entering any trade.

 

3) Move fast

Being aware of these market moves is one thing; capitalising on them is another.

Traders who seize opportunities when they arise, taking advantage of fast-moving trends or price swings, stand to benefit amid this Trump-fuelled market volatility.

After all, CFD traders can potentially profit both when prices go up or down.

Quick decision-making and execution, without letting your emotions run amok, are key to potentially profiting in turbulent markets.

Otherwise, all market participants can do is watch and rue those missed opportunities.

 

 

Volatility creates opportunities

Markets have certainly been volatile in these early days of President Trump's administration.

And to think that inauguration day was merely 2 weeks ago to the day (Monday, January 20th).

If this trend from these early days of Trump 2.0 persists through January 2029 - essentially, throughout Trump's final term in office - there are bound to be a lot more outsized market opportunities ahead ...

as long traders and investors remain alert, prudent, and strike during bouts of Trump-fuelled market volatility.