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We’re back to square one in terms of the US tariff disaster, as the US has started sending letters to countries revealing their tariff rates—and the rates don’t look much different from those announced on the so-called Liberation Day. 25% for South Korea and Japan, 25% for Malaysia; 30% for South Africa; and 40% for Myanmar and Laos.

There’s no fresh news regarding Taiwan and India, but the levies on some Asian nations are clearly pointing the finger at China—due to transshipments. Looking at the first wave of numbers, only one country appears to have pulled itself out of the tariff turmoil with minimal damage: the UK, with a tariff rate of 10%. The EU could also pull off a 10% rate as soon as this week—which would be great. But for the rest, the tariffs don’t look good, and the three-month risk rally is in jeopardy—even though markets remain on a surprising wave of optimism that defies the renewed tensions Asian tariffs will place on supply chains and prices.

The S&P 500 retreated 0.70% from an all-time high on Monday, but futures are positive on news that the new tariff negotiation deadline has been pushed to August 1. The Nikkei was down yesterday but is up again today on hopes that negotiations will continue and that the 25% levies could be reversed. The Stoxx 600 was also in the green yesterday, on optimism that Europe could pull off a good deal.

But this is all too much unexplained optimism. The deadline extension is not good news, per se. It simply adds to the uncertainty. It’s yet another sign that the deadline won’t be a line in the sand, and that tariffs set in the coming days and weeks won’t be carved in stone, either. They will be constantly changed—raised, lowered—and used as a go-to threat in every situation.

Repricing risks?

It’s probably time to start pricing back in the trade risks that were priced out far too quickly—under the umbrella of the so-called TACO trade. Trump isn’t chickening out, and inflation is knocking on the door. One reason why the tariff-led price pressures were initially contained is that many companies chose to swallow the costs while waiting to see if the tariffs were just a negotiation tactic. But if the tariffs are here to stay—and are constantly changing—businesses will have no choice but to adopt prices.

According to Goldman, companies are set to pass on 70% of the tariff costs through higher prices.

So one of the following scenarios will likely play out:

• Consumers absorb the tariffs, companies continue exporting to the US, and earnings stay intact—but inflation rises, upsetting the Federal Reserve (Fed) and pushing back (or reversing) rate-cut expectations. That could upset investors given relatively high valuations.
• Consumer spending crumbles, US GDP slows—possibly offsetting some of the tariff-led inflation—and company earnings take a hit. But the Fed could step in if inflation pressures remain tolerable.

Reality will probably fall somewhere in between: prices will rise, earnings will be pressured, the Fed will wait as US growth slows and inflation risks loom—and global investors may increasingly cut exposure to US assets, repatriating funds to alternative markets like the EU and Japan. Note that, a potential wave of Japanese repatriation could further weigh on US Treasury yields and amplify a broader risk-off move. And rising Japanese yields are also becoming an additional threat to the risk rally. The 10-year JGB yield is back to 1.50% this morning. When JGB yields rise, they become more attractive to Japanese investors—especially institutions like pension funds and insurers—who have historically been major buyers of US Treasuries and global equities, including US stocks. The ongoing trade tensions between the US and Japan could accelerate such repatriation—even though Japanese authorities earlier this year said they wouldn’t use capital flows as a negotiation tool. But things are moving too fast to rely on what was said a few months ago.

In FX, the US dollar rebounded yesterday and is consolidating gains on the back of the optimism stemming from the deadline extension to August 1. But if you think that deadline will be the only one—and not just one of many in Trump’s tariff playbook—then buying dollars on trade optimism looks like a weak reason. The EURUSD remains bid below 1.17. The AUDUSD is bouncing back today after the Reserve Bank of Australia (RBA) surprised by not cutting rates, contrary to expectations. Instead, policymakers cited strength in the labour market and a more balanced inflation outlook for keeping rates unchanged.

In energy and metals, US crude rallied to the 200-DMA but is seeing resistance at that level, as both a larger-than-expected OPEC output hike and renewed trade tensions weigh on the oil outlook. Copper futures on COMEX are retreating from the highest levels since April 2. That’s one area where price action actually makes sense.

In summary, markets continue to react in a suspiciously optimistic way, ignoring the risks and implications of tariffs on supply chains, earnings, inflation and growth. Assuming everything will be magically resolved in the next three weeks is like seeing unicorns in the sky. Something must give.

Daily Pivots: (S1) 197.30; (P) 198.15; (R1) 199.52; More...

GBP/JPY's rally from 184.35 resumed by breaking through 198.78 and intraday bias is back on the upside. Firm break of 199.79 resistance will target 100% projection of 180.00 to 199.79 from 184.35 at 204.14 next. For now, near term outlook will stay bullish as long as 195.33 support holds, in case of retreat.

In the bigger picture, price actions from 208.09 (2024 high) are seen as a correction to rally from 123.94 (2020 low). The pattern might still extend with another falling leg. But in that case, strong support should be seen from 38.2% retracement of 123.94 to 208.09 at 175.94 to contain downside. Meanwhile, decisive break of 208.09 will confirm long term up trend resumption.

Daily Pivots: (S1) 170.17; (P) 170.74; (R1) 171.61; More...

EUR/JPY's rally continues today and intraday bias stays on the upside. Next target is 138.2% projection of 154.77 to 164.16 from 161.06 at 174.03. On the downside, below 169.86 minor support will turn intraday bias neutral first.

In the bigger picture, price actions from 175.41 (2024 high) are seen as correction to up trend from 114.42 (2020 low). The pattern might still extend with another falling leg. But in that case, strong support should be seen from 38.2% retracement of 114.42 to 175.41 at 152.11 to contain downside. Meanwhile, decisive break of 175.41 will confirm long term up trend resumption.

Daily Pivots: (S1) 1.7963; (P) 1.8030; (R1) 1.8109; More...

Intraday bias in EUR/AUD is turned neutral again with current retreat. Further rally is expected as long as 1.7872 support holds. Above 1.8094 will target 161.8% projection of 1.7245 to 1.7705 from 1.7459 at 1.8203. Firm break there will target 1.8554 resistance. However, sustained trading below 1.7872 will turn bias back to the downside for 1.7459/7705 support zone instead.

In the bigger picture, price actions from 1.8554 medium term are seen as a corrective pattern. While deeper pullback might be seen, downside should be contained by 38.2% retracement of 1.4281 (2022 low) to 1.8554 at 1.6922 to bring rebound. Up trend from 1.4281 is expected to resume at a later stage.

Daily Pivots: (S1) 0.9336; (P) 0.9350; (R1) 0.9364; More....

EUR/CHF is still bounded in 0.9305/9428 and intraday bias stays neutral for the moment. On the upside, break of 0.9428/45 resistance zone will resume the rebound from 0.9218. On the downside, break of 0.9305 will bring retest of 0.9218 low instead.

In the bigger picture, while downside momentum has been diminishing as seen in W MACD, there is no sign of bottoming yet. EUR/CHF is still staying below 55 W EMA (now at 0.9433) and well inside long term falling channel. Outlook will stay bearish as long as 0.9660 resistance holds. Break of 0.9204 (2024 low) will confirm resumption of down trend from 1.2004 (2018 high).

Daily Pivots: (S1) 1.1667; (P) 1.1729; (R1) 1.1770; More...

Intraday bias in EUR/USD remains neutral for consolidation below 1.1829. Downside should be contained by 1.1630 resistance turned support to bring rebound. Firm break of 1.1829 will resume the rise from 1.0176 and target 61.8% projection of 1.0176 to 1.1572 from 1.1064 at 1.1927.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 1.1604 support holds.

Daily Pivots: (S1) 144.73; (P) 145.48; (R1) 146.83; More...

USD/JPY is still bounded in range of 142.66/148.01 and intraday bias remains neutral. On the upside, firm break of 148.01 resistance will resume the rise from 139.87 to 61.8% retracement of 158.86 to 139.87 at 151.22. However, break of 142.66 will bring deeper fall back to retest 139.87 low.

In the bigger picture, price actions from 161.94 (2024 high) are seen as a corrective pattern to rise from 102.58 (2021 low). There is no clear sign that the pattern has completed yet. But still, strong support is expected from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound.

Daily Pivots: (S1) 1.3563; (P) 1.3614; (R1) 1.3652; More...

Intraday bias in GBP/USD remains neutral as consolidations continue below 1.3787. Deeper pullback cannot be ruled out, but downside should be contained by 1.3369 support to bring rebound. Firm break of 1.3787 will resume larger up trend to 100% projection of 1.2099 to 1.3206 from 1.3138 at 1.3813.

In the bigger picture, up trend from 1.3051 (2022 low) is in progress. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Outlook will now stay bullish as long as 55 W EMA (now at 1.2985) holds, even in case of deep pullback.

Daily Pivots: (S1) 0.7948; (P) 0.7970; (R1) 0.8003; More….

Intraday bias in USD/CHF remains neutral and more consolidations could be seen above 0.7871. Stronger recovery cannot be ruled out, but upside should be limited by 0.8054 support turned resistance to bring another fall. Below 0.7871 will extend the larger down trend to 61.8% projection of 0.9200 to 0.8038 from 0.8475 at 0.7757. Firm break there will pave the way to 100% projection at 0.7313 next.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8475 resistance holds.

Daily Pivots: (S1) 1.3575; (P) 1.3596; (R1) 1.3625; More...

Intraday bias in USD/CAD stays mildly on the upside at this point. Corrective pattern from 1.3538 is in the third leg. Further rise would be seen to 1.3797 resistance and possibly above. On the downside, firm break of 1.3538/55 support zone will confirm resumption of whole decline from 1.4791.

In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4014 resistance holds. Next target is 61.8% retracement of 1.2005 (2021 low) to 1.4791 at 1.3069.