Forex alert: The pain trade might not be over

Asia wrap

Stocks just had one of their worst days this year as Trump’s tariff wrecking ball swung into action. With a new round of 25% levies on Canadian and Mexican imports set to hit, markets tumbled hard on Monday:

The decision came down to the wire. Trump held markets hostage until late Monday before all but confirming that the tariffs were a go.

Meanwhile, bond traders had a field day. Treasurys surged as investors rushed for safety, pushing 10-year yields to 4.178%—the lowest close of the year.

The bottom line is that risk-off mode is in full swing, and unless something changes quickly, the pain trade may not be over.

It’s official—Trump has pulled the trigger on 25% tariffs for Mexico and Canada, effective today. But that was just the opening salvo. An executive order just doubled tariffs on China to 20%, up from 10%, fueling fears that his April 2 reciprocal tariff threat is next in line.

And Europe? It won’t escape unscathed. With Trump locking in on trade imbalances, the EU’s VAT tax regime could put it squarely in the crosshairs.

Tensions are escalating rapidly, and markets are on edge—not just over tariffs but broader concerns about the U.S. economic health. The uncertainty is mounting, and investors are already repositioning for turbulence.

Brace for impact—this trade war is far from over.

Forex markets

Chinese equities feel the heat despite state institutions stacking the bid, as tariff fears overshadow stimulus optimism. Against this backdrop, Chinese policymakers might let the renminbi weaken further to offset the hit to external demand from yet another U.S. tariff hike. A USD/CNY test of 7.50 is within the realm of possibility.

That’s why all eyes and ears will be trained on the upcoming National People’s Congress. If Beijing steps up with pro-growth fiscal expansion, it could provide a much-needed cushion. If not, expect the capital outflow doom loop to start spinning.

Meanwhile, growth concerns and a flight to safety are keeping the U.S. Treasury market bid, providing a natural tailwind for the yen—even as Japan remains under tariff threat.

Traders are staying cautious ahead of NFP and lingering tariff uncertainties. Still, there’s a growing case for more action in the JPY—especially with a steady run of Tier-2 U.S. jobs data coming up. That said, someone in London had a very different take on the JPY yesterday, and we’re keeping an eye on London price action today.

On the EUR/USD front, we’re running a small contrarian short, as we don’t buy into the EU fiscal honeymoon bounce lasting much longer. That said, we remain cognizant that a Ukraine ceasefire could send EUR/USD higher, as lower implied energy prices would be bullish for the euro—which, incidentally, tends to be a supportive factor for JPY as well.

The bottom line is that markets remain fragile, and traders are managing their risks tightly. Buckle up—China’s policy response, U.S. labour data, geopolitical headlines, and Tariff Man will dictate the next moves.

With traders walking on eggshells, let’s not forget one of the market’s most notorious quirks—Turnaround Tuesday in US markets. It’s been around forever, built on the classic fear-greed cycle that sends traders into a panic on Monday, only for the market to rip higher the next day to keep things interesting.

I even bought the SPX dip today—just for a laugh. If Turnaround Tuesday comes through, well, that’s just one of those market absurdities that never gets old.