Global markets hammered by trade war fears

• Trump confirms tariffs on Canada, Mexico and China 
• Canada & China retaliate against newly imposed US tariffs 
• Trade war fears drag equity markets lower, gold shines 
• Trump speech + US jobs report + Powell speech = USD volatility?
• Technical levels: 107.00, 106.00 & 105.10

President Donald Trump’s tariff against Canada and Mexico took effect on Tuesday. 

Tariffs on all Chinese imports were also increased to 20%, up from the previous 10%.

In response, Canada and China announced immediate retaliatory measures – fuelling fears around a global trade war. 

This development roiled global markets, with risk aversion hitting riskier assets. US equities closed red yesterday, European shares are under pressure today, and gold is back above $2900. 

• US500: -1.8%
• US30: -1.3% 
• NAS100: -2.2%
• XAUUSD: 0.9% - Tuesday morning

Interestingly, the dollar remains under pressure despite the risk-off mood. This could be based on concerns over Trump’s trade war weakening the US economy and leading to lower US interest rates. 

Note: Last Friday, traders were pricing in a 35% probability of a 25 bp Fed cut by May. This has now jumped to 45% this morning.

Speaking of the dollar, the next few days could be volatile for FXTM's USDInd due to a selection of key events – 

• Trump’s address to Congress – Tuesday 4^th March. 
• US February jobs report – Friday 7^th March.

Note: The US economy is estimated to have created 160,000 jobs in February, higher than the 143,000 seen in January. The unemployment rate is expected to remain unchanged at 4.1%.

• Fed Chair Jerome Powell keynote speech – 7^th March.

Geopolitical developments concerning Ukraine may promote risk aversion, resulting in more volatility on the dollar. 

Possible scenarios:

BULLISH Dollar: If Trump’s speech to Congress sparks risk aversion. A stronger-than-expected US jobs report and hawkish Powell may push the dollar higher as Fed cut bets decline.

BEARISH Dollar: If markets shrug off Trump’s speech. A weaker-than-expected US jobs report and dovish Powell could drag the USD lower as Fed cut bets jump. 

Technical outlook:

Looking at the charts, the Dollar Index is under pressure on the daily charts with prices heading toward the 106.00 support. 

• If bulls can push prices back above 106.70, an incline toward the 100-day SMA and 107.00 could be on the cards.
• A break below 106.00 may trigger a selloff toward 105.60 and the 200-day SMA at 105.10.