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Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
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EURUSD set to rally again after fresh Trump tariff barrage?
John J. Hardy
Global Head of Macro Strategy
Summary: The euro swooned yesterday as the White House indicated new 25% tariffs on all auto imports, but EURUSD rebounded from a key technical area. Is this a signal for the bulls to renew their efforts?
We were all meant to be waiting for next Wednesday for the next big barrage of US tariff announcements, with markets hopeful that the Trump reciprocal tariff schedules would be more moderate than previously feared. And then early yesterday evening, European time, the White House made clear that it is readying new tariffs on all auto imports to be announced at 2100 GMT. The initial tariff rate will be set at 25% and will initially only target fully assembled cars as of April 3, with tariffs on major auto components set to go into effect a month later. Trump said that the tariffs will be “permanent” and there will be no room for negotiation, and further threatened the EU and Canada that the tariffs would be increased further should the two collude “to do economic harm” against the US. The tariffs will apply on top of any additional reciprocal tariffs and tariffs already in place.
The market reaction to this latest announcement was modest, as USDCAD traded about half a figure higher and EURUSD swooned about half a figure. Both EUR and CAD stabilized and even recovered overnight and into the European morning, even as European auto stocks exposed to the tariffs gapped lower. USDMXN, which many would have declared the most impacted by all things Trump tariffs, remains within a tight range. As we argue below, given the modest reaction function here after about as damaging a new development as possible for EURUSD, it could be time for the bulls to revisit the situation for a new push higher. These new tariffs will only reinforce the bear case for the US economy in the near term and the staggering global allocations to US stocks remain under threat.
Chart: EURUSD
EURUSD found support almost perfectly at the 38.2% retracement (1.0728) of the recent launch higher in the wake of the secular German attitude shift on fiscal stimulus. The risk for euro bulls here is much like the risk for those trading Trump tariffs, if even more so, as stimulus moves will take considerable time to formulate and implement. Still, yesterday’s auto tariff news is about as bad as it gets relative to the current set of expectations. We have to believe that those expectations have priced in some further bad news in next Wednesday’s Trump reciprocal tariff announcements, including that further bad news. This looks an important spot for the EURUSD rally to find further support to keep the eye on the 1.1200+ range high and even beyond. Still, if the attempt to find support here falters, there are lower key supports all the way down to the existential (for the bulls) 1.0600 area, with 1.0587 perhaps the last gasp support level.
Norges bank fails to cut
The Norwegian central bank held off from cutting the policy rate for the first time for this cycle. The market has largely called this development, with only low odds of a cut priced in, even after the central bank guided for a cut back in January before the latest, huge jump in the February CPI. The bank today guided expectations for the policy rate to fall this year to 4.0% by year-end (currently 4.5%) and the reaction saw a modest back off in NOK strength after the vicious rally of late. EURNOK is working down into a huge chart area that stretches down to just below 11.10. I still like it lower eventually even if we settle into a period of consolidation.
The week ahead
The week ahead features all of the usual first week of the month US data like the ISMs and labor market data next Friday, but the key event risk to “get out of the way” will be the April 2 Trump tariff announcements, which Trump has tried to sell more recently as “nicer” and “fairer” after previously touting them as “the big one”. Yesterday’s new auto tariffs can be thought of as a mini-test of the market mood here as they were more of a surprise than what is coming next Wednesday. Yesterday suggests that short term moves on tariffs are unreliable and increasingly modest. Tariffs are a policy that impact over a long time frame. After next Wednesday, the focus could quickly shift elsewhere, and whatever unfolds in the wake of Trump’s “Liberation Day” it could be just as much a function of getting this day out of the way to allow putting new risk capital to work as anything else.
FX Board of G10 and CNH trend evolution and strength.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.
The Euro rally has been effectively neutralized, so it is time for the single currency to put back on a show of strength or it may suffer a deeper rout as stale longs are forced to square positions. Elsewhere, the CAD weakness continues to ebb, while the JPY weakness has been one-to-one with the backup in us treasury yields.
Table: NEW FX Board Trend Scoreboard for individual pairs.
In the individual pairs, USDJPY is hanging on by a thread to its downtrend, and could well tilt higher still if US yields don't reverse lower here. Key USDJPY levels include the 200-day moving average currently at 151.67 and perhaps the ultimate resistance, the 61.8% retracement of the sell-off sequence at 154.16. EURCHF made a stand around the critical 0.9500 level today, and EURGBP needs to put in a rally to get a sense of broader EUR strength here, with the EURUSD uptrend still well into positive territory due to the magnitude of the launch higher through the 1.0600 area to the 1.0955 high.
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