More Losses for the Dollar Amid Sweeping Tariffs

With the new measures included, the total tariffs on China, Japan and the EU are now 54%, 24% and 20% respectively. Most instruments apart from havens declined sharply in the aftermath of the announcement, with the dollar index near six-month lows late on 2 April. This article summarises the latest news of trade wars then looks briefly at the charts of EURUSD and USDJPY.

The new 10% tariff applied universally to all products imported to the USA will take effect on 5 April while reciprocal tariffs on specific countries come in on 9 April. There was panic in markets as traders assessed the likely impact of these developments: higher inflation in America and higher probability of a recession within the next few quarters.

According to calculations from JPMorgan, these new tariffs would raise around $400 billion in revenue for the USA, making this the largest tax hike since 1968. JPMorgan expects PCE to rise around 1-1.5% by the third quarter as a result. It’s not clear yet exactly what further reciprocal tariffs targetted countries will impose on America, but the rhetoric from China and the EU in the aftermath of the announcement on 2 April has been aggressive.

Against current sentiment, Donald Trump’s policy discipline is notoriously poor. Earlier tariffs, particularly against Canada and Mexico, were changed repeatedly and unpredictably, so it’d be possible to see the latest announcement modified significantly in the next few weeks, especially if major countries affected do what the American government wants. That the tariffs are very likely to be modified in some way soon while they don’t have a stated duration is strongly negative for investment and stock markets because it makes it very difficult for participants to plan ahead.

This week’s news comes in the context of generally weaker American economic data over the last few months, relatively high inflation already and a slight majority of traders now expecting two cuts from the Fed by July. Although tariffs and reactions to them are the focus now, traders must not overlook 4 April’s job report from the USA. This could give a surprising result and increase volatility further since DOGE’s recent activity in cutting federal jobs might become apparent.

Euro-dollar Eyes $1.10 Again

With new tariffs likely to have a significant negative impact on the American economy, the euro made strong gains against the dollar in the aftermath of the announcement. Against these, inflation in the eurozone cooled to 2.2% according to the flash release for March. The consensus is for a total cut of 0.65% by the ECB for the rest of 2025, which in itself is a negative factor for the euro: the difference in rates between it and the dollar is unlikely to change significantly until possibly next year.

$1.10 looks like a strong resistance which could resist testing for some time unless sentiment supports a breakout. However, with the price having consolidated above $1.08 for most of last month, a move above $1.10 seems to be more favourable technically now compared to around this time in March: there’s no indication of overbought and the slow stochastic is close to neutral at around 55.

The area around $1.07-1.08 and particularly $1.07 itself around the 100% monthly Fibonacci retracement will probably remain in view as a zone of support. A lot depends on the results of the upcoming American job report: since the range of expectations for total nonfarm is so wide, it seems more likely that the actual result will diverge significantly from the average consensus.

Dollar-yen Tanks, Retesting Seven-month Lows

Havens generally had a significant boost from Donald Trump’s latest announcement of sweeping new tariffs, with the yen in particular showing strong overall gains in most of its pairs. Flight to safety has been the primary driver for the yen in the last couple of days. The yen’s expected higher yield later this year could now be questioned because the impact of tariffs on Japanese inflation might not be very large while exports will almost certainly be lower than previously expected. When the Bank of Japan will hike next remains a significant intrigue; September seems less certain in light of the latest developments.

¥146.50 is still the key support, last month’s low and the area of lows in March last year also. If the price breaks below there successfully, there might be significant continuation before the next possible support. However, volume has been relatively low for dollar-yen in the last couple of days compared to early March, so an immediate move lower is somewhat questionable.

A bounce above ¥149 is probably less likely still given both the technical and fundamental situation. The price couldn’t move clearly above ¥151 last month amid low volume, with the 200 SMA functioning as a dynamic resistance. As for euro-dollar, dollar-yen’s next major movement is likely to depend on the reaction to 4 April NFP. If the result isn’t particularly surprising and the trade situation remains confused, consolidation seems to be possible in the next few days.

This article was submitted by Michael Stark, an analyst at Exness.

The opinions in this article are personal to the writer; they do not represent those of Exness. This is not a recommendation to trade.