Psychology for major markets February 3rd

EUR/USD – US tariff announcement undermines EUR/USD via a combination of higher US short term yields, lower equities and expectations of tariffs being extended to Europe. Downside risks remain if equities continue to weaken.

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 – Retesting the post-pandemic lows near 0.61 on general tariff induced USD strength and risk aversion. 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.