FX alert: Trump pauses tariffs, but the Dollar is still in “you're fired” mode

Market wrap

Equity futures are flashing green across the board — US, Europe, and Asia — hitching a ride on the coattails of Trump’s tech tariff pause. After last week’s market whiplash, the move was just enough to pump some air back into the tires and trigger a bounce. But let’s not confuse relief with reversal — this ain’t the start of a new bull run, it’s more like giving CPR to risk sentiment.

FX desks aren’t buying the calm. Traders are already leaning hard into the “U.S. economic reset,” aka “ Mar-a-Lago Accord” narrative, and they’re also betting the pain trade starts bleeding into the data tape — hence the EUR/USD buyers on dips as they wait for the tariff shock to materialize in hard US data. The Fed can play standby firefighter for only so long before the smoke turns to flame, and Powell’s got to blink. And when that happens, well... that’s when the real FX repricing hits — and it won’t come with a warning bell or a tidy press release.

President Trump’s latest round of “fentanyl tariffs” barely left a scratch on China’s March export machine — once again, the numbers beat expectations. But don’t let the headline lull you into complacency. Beneath the surface, some key categories are already flashing early signs of trade war stress. The real hit? That’s coming next month as bilateral trade data will likely take a meaningful dive. The lag is classic — the pain takes a cycle to show up — but make no mistake, the fallout is coming.

Forex markets

The dollar continues to flounder, and with Scott Bessent stepping into the trade fray, I’m circling back to the Mar-a-Lago blueprint I floated in my weekend note — the quiet idea that a softer dollar is becoming strategic policy. If that’s the playbook Trump’s team is leaning on, especially with Bessent quarterbacking talks with China and Japan, we may be looking at FX manipulation through a diplomatic lens. Forget Plaza Accord nostalgia — this is Mar-a-Lago mechanics, and it’s subtle but in motion.

That kind of framework runs directly counter to my current EUR/CNH barbell, which suddenly feels more like a contrarian bet than a directional edge. I might be too bearish on CNH here. Will a stronger Yuan be China's olive branch?

Meanwhile, EUR/USD and USD/JPY vols at 20% late last week? It's absolute rocket fuel. That's not sustainable — but it’s more than enough to unleash the CTA crowd and spark systemic shifts in positioning. EUR/USD breaking technicals last week was a big tell. The algos are sniffing blood.

And the ECB? It’s on the radar, but let’s be honest — when Trump’s playing 4D tariff chess with a scattergun and the market’s pricing in a Fed bond backstop, the euro’s moves are less about Lagarde and more about dollar dysfunction.

So yeah — I thought today was about trimming Euro risk and leaning into ECB prep. Now I’m in recalibration mode, trying to juggle a USD tape that’s acting like it just got handed a pink slip by its own policymakers. The blueprint’s shifting — and I may have drawn it first, but the market’s the one colouring it in today.

The trade viewer

There’s a trade idea ripping through the macro circuit right now: “Long 2s, Short Spoos… Until Powell Panics.” That’s Michael Hartnett’s framing — a bet on the end of U.S. exceptionalism.

For us in FX, this maps cleanly to one thing: long EURUSD. It’s the most liquid, intuitive, and cleanest expression of that trade.

Now, I’ve always said — don’t trade someone else’s homework. But let me caveat that: if the cross-asset correlation aligns with your own playbook, then by all means, lean in.

Zooming out, if we really are in the early innings of a U.S. economic reset — where the tape becomes pain for equities and the dollar bulls still hanging on — this setup starts to shine.

It’s a narrative-supported, cross-asset-aligned, risk-adjusted directional trade. Doesn’t get more textbook than that.

I probably jumped the gun a bit, hedging some long EUR/USD( that means selling EUR/USD) in early Asia spike — classic case of trying to front-run the flow before the real money showed up in London. Now the proper desks are walking in and hitting the “ Mar-a-Lago ” trade hard. I did sell another small clip. I’ve still got two more hedges to place covering about 40% of my long EURUSD book, and I’m letting the algo do its thing — trickling out via TWAP over the next 48 hours.

It's not overly price-sensitive here unless we smash through 1.1480 — that’s my line in the sand. If we take that out with conviction, I might scrap the hedge idea altogether.

On the flip side.

Bob Michele over at JPM nailed it on BBG TV — “a complete deleveraging of positions” — and honestly, that’s the cleanest read I’ve heard on what’s been crushing Treasuries. But let’s be real: the debate’s still raging across desks about what’s actually driving the move. Is it the basis trade unraveling? Dysfunction in swap spreads? A full-on buyers’ strike from real money? Yield tourists stepping back, demanding a fatter premium? Or maybe China’s quietly unloading USTs — that bit’s still unverified, but it’s got legs.

From where I sit, the answer’s probably not one thing — it’s a cocktail of chaos. A median-of-mess scenario where every arc is bleeding into the next. That’s what happens when structural plumbing issues collide with narrative overload. But here’s where it gets interesting: the “Fed put” chatter is slowly creeping back into the market’s bloodstream, not about cuts per se — more about whether the Fed will step in to steady the bond market’s legs if yields go unhinged.

If the technicals start swinging back — and they could — you’ve got a perfect storm for CTAs and quant funds to pile back in, potentially fueling a major rally reversal. In UST’s Add month-end rebalance buying to the mix, along with USD demand from asset managers re-up equity hedging FX exposure, suddenly, that oversold bond and dollar tape has a shot at a snapback. Nothing is guaranteed, but the mechanics are lining up. Keep your playbook nimble, as it will be a very messy month-end. I know we’re two weeks away, but keep it in mind.