Tariff Delays Driving Risk Appetite

The latest iteration of tariff-pause relief for the market comes after Trump’s spat with the EU (European Union, where he threatened tariffs of 50% at the end of last week) before quickly changing tune and delaying trade-hostilities until July. This delay of tariffs and a seemingly renewed willingness of the EU to come to the table keeps the door open for a potential deal to be struck (at tariff levels south of the 50% mark), which has seen Wall Street stocks pop higher (on Tuesday, after resuming following the Memorial Day long weekend).

While Trump’s various tariff pauses have had the effect of settling market nerves, the fact remains that the list of countries that Trump has reached trade deals with thus far remains a short one (including with the UK, and India with regards to dropping tariffs on certain US imports). Therefore, re-escalation on the trade front remains a lingering threat in the absence of pen being put to paper on new trade agreements.

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The USD has crawled off its lows thanks to the latest tariff pause and a better US consumer sentiment reading (released on Tuesday in the US). Nonetheless, the Dollar rebound has been moderate rather than massive and that is mostly due to investors remaining wary of the large fiscal deficit and debt problems facing the US. Also serving to keep a lid on the USD is an expectation that US trade officials (including Trump himself) would likely prefer to see a weaker US currency to help with trade competitiveness.

The Dollar Index (DXY) remains pinned below the 100 level for now, with resistance at 99.95 and again further out at 101.10. Support sits just below the recent lows at 98.60. Outside of tariff-related headlines, the other factor impacting the Dollar will be interest rate expectations, and they will come into focus this week when the US Core PCE Price Index (the Fed’s preferred inflation gauge) is released (on Friday). If an upside surprise happened to be produced this could delay expectations for when the Fed may next cut rates, which would be supportive of the Dollar from a yield perspective.

Gold has eased off its highs for the week. The mild push higher in the USD combined with investors feeling more at ease about US-EU trade negotiations has dampened demand for safe haven assets, for the time being at least. This has seen gold ease from levels around $3360 to $3285, before recovering to $3300. Support at $3280 held during the recent downturn, and below this is another key support at $3250 which if broken could possibly open a larger slide in gold down towards the next decent support level at $3186. As such, if gold aspires for making a push back towards $3400 in the near term, support in the $3250-$3280 range may need to continue to hold the line.

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Elsewhere, the possibility of increased production from OPEC+ is an inhibiting factor on the oil price. Energy markets are ready for the cartel to increase supply in June and more could be on the way in July, which could keep prices pressured. However, oil could respond positively in the coming weeks and months if there is progress on trade deals or heightened US tensions with Iran. For the moment, US crude trades at $61.18, with support at $60.10 and resistance at $61.65.

In addition to the US Core PCE Price Index release this week, the other big event is Nvidia’s earnings result (due after the US market close on Wednesday). Nvidia’s earnings are poised to shape market sentiment amid the prevailing global trade tensions and U.S. fiscal concerns. The tech giant’s outlook on AI chip demand and data centre growth could either bolster the current bullish mood or burst it if the forecast falters.

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