With President Trump announcing sweeping tariffs on key trading partners, the markets have snapped back harder than a bad bungee cord. The announcement on February 1st introduced a 25% tariff on Mexico and Canada, alongside a 10% tariff on China.
The immediate reaction was sharp and unforgiving, with stock markets across Asia and Europe sliding into the red as traders reassessed their risk exposure.
The Dow Jones Industrial Average (DJ30) plunged as much as 665 points, and the S&P 500 (SP500) suffered a nearly 2% decline as traders braced for the impact of a fresh trade war. The Nasdaq Composite also took a hit, reflecting the unease surrounding global supply chains and the broader economy.
However, markets found some footing later in the day when President Trump announced a 30-day suspension of tariffs on Mexico following an agreement with Mexican President Claudia Sheinbaum. Shortly after, Canadian Prime Minister Justin Trudeau confirmed that Canada had secured a similar reprieve.
These developments injected a fresh dose of optimism, leading to a partial recovery in U.S. equities. The S&P 500 pared its losses to 0.76%, the Dow Jones trimmed its decline to just 122.75 points (0.3%), and the Nasdaq Composite closed down 1.2%.
Despite the rebound, uncertainty lingers. Trump made no mention of suspending the 10% tariff on China, which took effect immediately. The administration has hinted at potential negotiations with Beijing over the next 24 hours, but until concrete steps emerge, the market remains cautious.
In response, China has announced its own set of retaliatory tariffs, with additional duties of up to 15% on select U.S. imports set to take effect on February 10th.
The European Union is also closely monitoring the situation, with speculation mounting that it could be the next target for new tariffs. If this happens, the downward pressure on global equities could intensify, given the EU’s status as a key trade partner for both the U.S. and China.
With markets reacting swiftly to trade policy shifts, we take a step back to analyse the technical landscape.
The U.S. dollar index (USDX) has also seen a volatile stretch, moving from 106.80 to 109.70 before retreating. The next key level to watch is 107.70. If the index consolidates there, traders will be eyeing bearish movements at 108.65, with a potential test of 107.15 on the horizon.
Currency markets have also reflected the shifting tides. The euro (EUR/USD) found support at 1.0210 and has been rising toward 1.0400. If the pair consolidates at that level, a move toward 1.0480 could be in the cards.
The British pound (GBP/USD) followed a similar pattern, rebounding from 1.2248 and approaching the 1.2526 resistance level. If that breaks, the next resistance to watch is 1.2540, with 1.2645 potentially coming into play.
Meanwhile, the Japanese yen (USD/JPY) has remained relatively stable, trading sideways as markets await further clarity. If it moves lower, bullish price action may emerge around 152.90 or 152.30.
The Swiss franc (USD/CHF) has also seen a pullback after peaking at 0.9196, with traders monitoring price action around 0.9035 and 0.9120.
In the commodity space, oil (USOIL) prices have been consolidating around the $71.00 mark. If the market pushes higher, $76.50 could become the next level of interest.
Natural gas has been in a retracement phase, with a new swing low potentially forming near $3.10.
U.S. equities are still digesting the shifting trade landscape. The S&P 500 could be consolidating ahead of another move higher, with resistance levels at 6,190 and 6,330 in focus. Nasdaq is eyeing 21,760 as a critical level, while Bitcoin remains range-bound, waiting for clearer trade policy signals before making its next decisive move.
With traders already on edge from tariff uncertainty, this week’s events could inject another dose of unpredictability into the mix.
All eyes will be on the Bank of England as it announces its Official Bank Rate on Thursday. The market is currently pricing in a possible pivot later in the year, but if the BoE delivers a hawkish surprise, the pound could get a boost. On the flip side, a more dovish outlook could send GBP/USD lower, especially with the U.S. dollar already flexing its strength amid trade-related uncertainty.
On Friday, February 7th, fireworks may spark with the U.S. Non-Farm Payrolls report. After last month’s surprisingly strong job gains, expectations are high, but any deviation from forecasts could trigger sharp moves across equities, bonds, and forex markets.
If job growth remains robust and the unemployment rate stays low, it could reinforce the Federal Reserve’s higher-for-longer stance, keeping rate cut expectations in check.
As the dust settles, traders remain cautious. While the temporary pause on tariffs for Mexico and Canada has alleviated some fears, the absence of a deal with China keeps risk sentiment fragile. The next round of negotiations could determine whether markets stabilise or if fresh volatility takes hold.
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