In our latest Tricio Monthly Insights we covered the twists and turns in Washington policy from the Trump sequel that are roiling markets, and have the potential to disrupt markets for some time. We look at charts in order to gauge sentiment and investor behaviour, which can be useful in uncertain times.
The tariff tit-for-tat with Canada has already started. The USD/CAD weekly chart (below) shows that the USD has struggled to break above C$1.48/C$1.50 in the past, but a break above this area would leave C$1.60/C$1.6180+ at risk. Unless C$1.50 gives way on a sustained basis though, we would be looking for a pullback to C$1.40/C$1.38 on this chart (back to the 50-week moving average area), But this may require the current disruption to be short-lived.
The chart below is USD/MXN, which was a ‘pure play’ for global macro traders when Trump’s first administration launched his initial ‘Tariff wars’. USD/MXN hit 22 in early 20217 but then fell to the 17.50 area in summer 2017. This time around USD/MXN approached 21.30 last month, and hopefully for ‘calm markets’ fans, this may be the peak for this run of the tariff wars. A break would set up the 22 area though (horizontal lines) and if the latter area gives way, the COVID 25.70+ levels would be at risk of being tested. If 21.30 holds off sustained breaks then a return to the 19 area (50-week moving average) could follow with 20 being the big level for the MXN to break.
On the US risk side of the coin, the weekly chart of the NASDAQ 100 (below, semi-log) is a good proxy for sentiment. The Tesla share price has been under pressure given the recent disenchantment with Musk’s allegiance to Trump. The broader NDX index set new highs a few weeks ago but is falling fast. Watch the 50-week moving average near 19,900 as a key ‘demand’ line that has brought out buyers in the past. A sustained drop below this would leave the bottom of the rising channel at risk near 15,600. A break of the latter? Ay caramba! Hopefully this won’t be seen, but there is a chance that investors take a more bearish view on US equity market prospects as the new tariff war could spread to Europe and other countries and the global economy could slump. We are not looking at a return to a 1930’s style depression, but there is a lot of positive views priced into the NDX which may come under question if the tariff war expands or persists.
If investors take a sour view on US economic prospects they may switch further funds to US bonds. The US economy held up much better than many expected in 2024 but the latest Atlanta Fed GDPNow forecast suggests that Q1 GDP will come in very soft at -2.8% (annualised). The reading will swing around over the next few weeks, but it underlines the start of the shift in sentiment.
The chart below shows the US 10-yr. note yield as a proxy for the broader market. Yields have retreated from the 4.80% probe seen in January and may fall to 4% and then to the 3.7% rising line below this. A break below this may need a big jolt to growth prospects which would trump inflation risks from tariffs. If seen though, don’t rule out a break of the 3.6% 2024 low for 3.3%/3.0% and even lower.
For more detailed views on global macro markets and our insights on tariffs and American exceptionalism (and other columns) please contact us for a free copy of our latest Monthly Insights at info@tricio-advisors.com.
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