In the early weeks of his presidency, President Donald Trump’s aggressive trade policies have been under rigorous scrutiny. Speculation is rife that the European Union may become the next target for Trump's tariff threats, a move that could provoke strong retaliation from the EU. This looming possibility raises concerns of a full-blown global trade war, as markets brace for potential disruptions.
Trump's administration had already delayed imposing tariffs on Mexico and Canada, granting them time to meet certain demands. However, there remain no assurances that these restrictions will be lifted, even if both countries comply with U.S. requirements. The administration's strategy appears to use tariff threats as leverage to secure concessions from trade partners.
The financial markets are reacting cautiously to this risk-laden environment. Investors are wary of a potential overbought relative strength index (RSI), signaling caution for bullish traders. Concurrently, expectations of a Federal Reserve rate cut have been eroding the strength of the U.S. dollar, while simultaneously providing support to the XAU/USD pair, with gold prices attracting safe-haven flows amid escalating worries about Trump's trade tariffs.
Despite the ongoing delay with Mexico and Canada, a 10% tariff on Chinese goods remains in effect, reflecting Trump's unwavering stance on trade. While the magnitude of these trade levies did not surprise markets, the rapid imposition of tariffs and the swift retaliatory measures caught traders off guard, injecting volatility into global financial markets.
The potential implementation of tariffs on the European Union surfaces as a critical point of concern. The EU heavily relies on U.S. demand, which constitutes approximately 5% of its GDP. Any imposition of tariffs could significantly impact the euro, making news in this regard pivotal for currency traders.