Psychology for major markets February 4th
Most currencies back to Friday's closing levels as tariff increases are suspended
EUR/USD – EUR/USD bouncing as Trump suspends tariff increases on Mexico and Canada for a month. Most currencies are back to Friday’s closing levels, but EUR still a little lower perhaps fearing announcement of tariffs on the EU, but upside favoured.
USD/JPY – JPY holding its own against the USD benefitting from risk aversion in response to the tariff announcements and trade war concerns. Yield spreads still suggest USD/JPY downside favoured.
EUR/GBP – GBP edging higher against the EUR as EUR weakens and Trump indicates 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 weekend tariff announcements and vulnerable to less dovish Fed policy and damage to global growth due to trade wars. US market will lead the way short term and remains overdue a large correction from extremely expensive levels.