Nick Goold
President Donald Trump has officially started his presidency, and financial markets are closely watching for the rollout of his promised tariff policy. While tariffs were initially expected on his first day in office, January 20, 2025, Trump delayed the announcement to February 1 to allow for further negotiations and analysis.
On February 1, Trump is expected to announce 25% tariffs on imports from Canada and Mexico, along with a possible 10% tariff on imports from China. These measures could disrupt supply chains, increase costs, and slow economic growth, especially if they escalate into a broader trade war. Nobel laureate Paul Krugman compared such tariffs to “throwing sand in the gears of international commerce,” emphasizing their potential to disrupt global markets.
With February 1 approaching, traders are bracing for heightened volatility across all financial markets, including stocks, foreign exchange (FX), commodities, bonds, and Bitcoin. Sharp movements are expected as global economies react to the potential ripple effects of these tariffs. Below, we examine the implications of Trump’s tariff plans and share strategies to navigate the uncertainty ahead.
What Are Tariffs, and Why Are They Important for Traders?
Tariffs are taxes imposed on imported goods, aimed at protecting domestic industries by raising the cost of foreign products. While they can boost local production, tariffs often lead to higher consumer prices and retaliatory measures from trade partners.
Trump’s proposed tariffs include:
- China: A 10% tariff on imports, potentially escalating to 60%.
- Mexico and Canada: 25% tariffs set to take effect on February 1, targeting issues such as drug trafficking and immigration.
- European Union: Threatened tariffs on energy and trade imbalances, though no specifics have been announced.
The broader fear among traders and economists is that these tariffs could spiral into a full-scale trade war, where countries retaliate by imposing their own tariffs. A trade war could reduce global trade volumes, disrupt supply chains, and dampen business investment, ultimately curbing world economic growth.
Why a Trade War Could Negatively Impact Global Growth
- Higher Costs for Businesses and Consumers: Tariffs raise the cost of goods, squeezing profit margins for businesses and reducing disposable income for consumers.
- Supply Chain Disruptions: Companies that rely on global supply chains may face delays and increased costs, making production less efficient.
- Reduced Business Investment: Heightened uncertainty discourages companies from investing in new projects, slowing economic expansion.
- Retaliatory Measures: As countries impose counter-tariffs, the flow of goods decreases, reducing economic activity globally.
Krugman’s warning about the "destructive" nature of Trump’s tariffs highlights the risks of protectionism, where short-term gains for certain industries are offset by long-term inefficiencies and slower growth.
Market Impact of Tariffs on Key Trading Instruments
FX Markets
Tariffs are expected to be inflationary, potentially leading to higher U.S. interest rates for an extended period, which would strengthen the dollar. This could cause USD/JPY to rise while EUR/USD and GBP/USD fall, as the dollar becomes stronger against these major currencies. If Trump decides to target Japan with tariffs, it could lead to a significant strengthening of USD/JPY, as Japan's export-driven economy would face increased trade pressures, reducing demand for the yen. However, if tariffs significantly hurt global trade and dampen economic growth, the Federal Reserve might lower interest rates to support the U.S. economy, which would weaken the dollar.
The Mexican Peso (MXN), Canadian Dollar (CAD), and Chinese Yuan (CNY) have all weakened recently, as these currencies are among the most likely to be targeted by Trump’s tariffs. A higher tax on imports to the U.S. would reduce demand for goods from these countries, further pressuring their currencies.
Stock Indices
The S&P 500 and Dow Jones face risks as tariffs emerge as the biggest threat to the strong rally in global equities over the past two years. Tariffs could disrupt supply chains, increase costs for businesses, and dampen corporate earnings, particularly in trade-sensitive sectors like industrials, automotive, and technology. These pressures could weigh on investor sentiment, potentially leading to a broad selloff in U.S. indices as concerns over slowing economic growth escalate.
The Nikkei 225, heavily influenced by Japan's export-reliant economy, is particularly vulnerable to trade tensions. Rising tariffs on Japanese goods would hurt exporters, leading to declining earnings and dragging down the Nikkei. European indices like the DAX, which relies heavily on global trade, are also likely to come under strain as key industries such as manufacturing and automotive face rising costs and weaker demand.
The potential for a prolonged trade war further amplifies these risks. Economic uncertainty and reduced growth prospects could trigger a sustained decline in equities, erasing much of the gains achieved during the past two years' rally. As tariffs continue to dominate headlines, stock indices remain highly sensitive to policy developments, with any escalation likely to exacerbate volatility and market pressure.
Commodities
Gold, often seen as a safe-haven asset, typically benefits from periods of market uncertainty, making it a popular choice for traders during trade wars. However, the relationship between gold and tariffs is more complex. If tariffs lead to higher U.S. interest rates and a stronger dollar, gold prices could fall, as a stronger dollar makes gold more expensive for foreign buyers and higher interest rates reduce the appeal of non-yielding assets like gold. Conversely, if a large-scale trade war were to escalate, triggering broader economic uncertainty and reducing confidence in financial markets, demand for gold could increase as traders seek safety, driving prices higher.
Tariffs could have a significant impact on oil prices, but the direction depends on their broader economic effects. For instance, tariffs on Canadian oil imports could disrupt supply chains and create short-term volatility in crude oil prices. However, the negative impacts of tariffs on global economic growth would likely weaken overall demand for oil, as reduced trade activity and slower industrial production translate into less need for energy. In such a scenario, oil prices could fall, reflecting the diminished demand and heightened concerns about a global economic slowdown.
Bond Markets
Rising inflation expectations from tariffs could drive U.S. Treasury yields higher. Tariffs increase import costs, fueling inflation and prompting the Federal Reserve to keep interest rates elevated for longer. Higher rates push Treasury yields up as bond prices adjust. Investors may also demand higher yields to offset inflation’s impact. However, if tariffs weaken global trade and growth, the Fed might lower rates to support the economy, causing yields to fall. This makes Treasuries highly sensitive to trade policies and a key focus during tariff uncertainty.
Bitcoin
President Donald Trump is pro-Bitcoin, but his proposed tariffs could indirectly lower Bitcoin prices by driving inflation higher and keeping interest rates elevated. Higher rates strengthen the U.S. dollar, making Bitcoin less attractive compared to yield-generating investments. Increased borrowing costs could reduce speculative investments like Bitcoin, as higher debt costs limit capital in high-risk markets. A trade war could also reduce risk appetite, leading to lower demand for Bitcoin.
Trading Strategies for Volatile Markets
Use Stop-Loss and Take-Profit Orders
In volatile markets, price movements can be sudden and extreme, making it essential to protect your capital. Always use stop-loss orders to cap your downside risk and take-profit orders to secure gains. These tools ensure that emotions don’t interfere with your trading decisions, especially during periods of heightened uncertainty.
How to Adjust Your Orders in Volatility
Dynamic Adjustment: If the market is moving strongly in your favor, consider trailing your stop-loss to lock in profits while allowing room for the trade to continue.
Set Realistic Targets: Use daily ranges, historical price action, or key support/resistance levels to define reasonable stop-loss and take-profit levels.
Breakouts
Breakout trading involves capitalizing on price movements beyond key levels, such as hourly or daily highs and lows. These are often triggered by heightened market activity or major announcements, making them ideal during volatile sessions.
Tips for Breakout Trading:
- Identify Key Levels: Use technical analysis to pinpoint recent hourly or daily highs and lows as breakout points.
- Trade During Active Hours: Breakouts are most successful during high-volume sessions, such as the London or New York open, where momentum can drive price continuation.
- Avoid Quiet Periods: During less active trading hours, such as early in the Asian session, breakouts are more likely to fail or reverse. Be cautious of false breakouts during these times.
Reversals
Reversal trading focuses on capturing price moves when the market has overextended from a key moving average or long-term support/resistance levels. This strategy is particularly effective when markets swing too far, too fast, and need to correct back to equilibrium.
Tips for Reversal Trading:
- Wait for Confirmation: Don’t jump into a reversal trade prematurely. For bearish reversals, wait for a down bar (a bar that closes lower than it opens). For bullish reversals, wait for an up bar (a bar that closes higher than it opens).
- Use Long-Term Support and Resistance: Identify significant levels that the market may respect when overextended. These levels provide stronger reversal opportunities.
- Monitor Price vs. Moving Averages: When the market moves significantly away from the moving average (e.g., 10- or 50-period), watch for signs of exhaustion before entering a reversal trade.
- Patience is Key: Entering too early can result in losses if the trend continues. Let the market show clear signs of a reversal before placing your trade.
Adapt to Changing Policies
With February 1 approaching, when Trump is expected to announce new tariffs, traders must remain highly flexible. Trump’s history of sudden policy shifts means that the market’s direction can change rapidly with little warning.
How to Stay Adaptable
- Track News in Real Time: Use news aggregators and alerts to stay updated on developments in trade policy.
- Adjust Strategies Quickly: Be ready to shift between breakout, reversal, or trend-following strategies depending on how the market reacts to news.
- Hedge Risk: Diversify positions across instruments or use options to limit exposure to unexpected announcements.
Know When to Stay Out
Not every market condition is tradable. In periods of extreme volatility, where price movements are erratic and lack direction, staying out of the market is often the wisest choice.
When to Sit on the Sidelines:
- Unclear Direction: If the market shows no clear trend or setup, avoid taking unnecessary risks.
- Excessive Volatility: When price swings are so wide that stop-losses are frequently triggered, it may be better to wait for calmer conditions.
- Lack of a Clear Plan: If you don’t have a defined strategy for how to handle current conditions, don’t trade impulsively.
Seize Trading Opportunities with Titan FX as Trump’s Presidency Begins
The start of Trump’s presidency is creating exciting opportunities across global markets. Tariff announcements, economic policies, and geopolitical shifts are driving volatility, offering traders the chance to profit. U.S. stock indices, individual stocks, and FX pairs like AUD/USD and USD/JPY are seeing increased activity. Crude oil and commodities are also in focus as energy and trade policies create price swings.
With Titan FX’s MT5 platform, you can trade FX, stock indices, individual stocks, commodities, and Bitcoin—all from one account—giving you the flexibility to capitalize on dynamic market conditions.
Why Choose Titan FX?
- Fast Execution: React quickly to fast-moving markets
- Dedicated Support: Get professional assistance whenever you need it
- Seamless Deposits & Withdrawals: Stay focused on trading, not logistics
- Multi-Market Access: Effortlessly switch between assets to adapt to market changes
As Trump’s presidency fuels market volatility, Titan FX provides the tools you need to trade with confidence. Start trading on our advanced platform today and seize these opportunities!
