Psychology for major markets February 6th

EUR/USD – EUR/USD still struggling to return to pre-tariff announcement levels, dipping back below 1.04. Some concerns about potential future tariffs on the EU continue to weigh, but news needed to test recent lows.

USD/JPY – JPY gaining steadily against the USD benefitting from stronger than expected Japanese wage data and some risk aversion in response to the tariff announcements and trade war concerns. Yield spreads still suggest USD/JPY downside favoured.

EUR/GBP – EUR/GBP bouncing from 0.83 after recent losses ahead of the BoE MPC meeting. GBP has benefited from the perception that the UK is less of a tariff target than the Eurozone. But BoE policy risks remain on the GBP downside.

AUD/USD – Broke to new post-pandemic lows below 0.61 on general tariff induced USD strength and risk aversion. But has bounced as the tariffs have been suspended, and looks good long term value near current levels, but may be held back by risk aversion near term.

Equities – Sold off sharply on tariff announcements and vulnerable to less dovish Fed policy and damage to global growth due to trade wars if tariff concerns re-emerge. US market will lead the way short term and remains overdue a large correction from extremely expensive levels.