United States trade wars giving investors a run for money

Starting with our standard analysis of world events and fundamental economical data trade wars remain the biggest threat to volatility in the financial markets. US indexes are below their respective near-term support levels and are poised to fall farther. Actions taken by the United States and China have given investors a run for their money. World Central Banks are all shifting toward a more dovish policy and the US is raising tariffs on their trading partners. This idea that increasing tariffs is good for the domestic economy is riddled with questions and guesswork. The US ban on Huawei is yet to receive a counter measure from China, as they are opting to fight the decision in world court through the World Trade Organization and the US supreme court.

Many countries are choosing to mirror the aggressive actions of the United States instead of leading with predatory action like the Trump administration is opting for. Russia fought back with counter sanctions. Europe has put up tariffs against Boeing for taxes imposed against Airbus. Now China is choosing to sanction transistors used in Apple products that are made in China. Additionally bans on shipping rare earth materials have been enacted. China has been slow and steady in their counter measures to allow for their trade partner, the US, to choose a change of course and perhaps even reverse course.

Even while China has publicly stated that foreign companies are investing 49 billion Yuan into the economy the situation is getting worse in the White House. US representative Mike Pence has announced that the US is willing to more than double tariffs on China. We are interested in monitoring this situation because actions taken by the US against China will severely alter investments in the Yuan, the Hang Seng index and the Australian Dollar.

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USD MXN

Also, we can see US economic aggression at home with the Trump administration standoff with their Mexican partners. Not only is it worrisome that the US is financially attacking an ally, it’s the demands set forth that trouble analysts. President Trump vowed to impose a 5% tariff on goods from the country of Mexico, until it stops immigrants from entering the U.S. This puts the United States-Mexico-Canada Agreement at risk and raises questions of how to measure such a criteria?

The kicker for traders and anyone watching this situation is that President Trump added, “we will gradually increase the tariffs to 25%”. This has large implications for American automakers and other companies which moved their production plants into the country with cheaper labor.

The US dollar is ignoring its economic backdrop and is continuously growing against its counterparts. The situation with Mexico and China will get worse before it gets better. Trump is only starting his trade wars and the markets have not properly priced in the negative effects. Keep in mind that safe haven assets like Gold prosper in such conditions of uncertainty.

A rise above 19.71 for USDMXN would be a good entry point for a continuation trade until the target price of 20.18.