Forex markets often start the week with low trading activity until more Asian centers open. This can cause price fluctuations, so it’s wise to be cautious. Over the weekend, Trump announced a 30% tariff on certain goods from the EU and Mexico, starting August 1. This news led to a slight increase in the USD, with a chance for prices to return to previous levels based on how the market reacted in the past to similar news. The week started quietly in foreign exchange, with fewer trades happening before Tokyo and other major Asian markets were fully active. With low trading volumes at this time, price movements can become erratic. This isn’t due to higher overall volatility but rather fewer transactions. In such conditions, even small buy or sell orders can lead to significant price changes. It’s best to avoid making aggressive trades right away. The US announced new tariffs over the weekend. A 30% tariff will be imposed on selected goods from the EU and Mexico, effective August 1. These policy changes usually impact the market significantly. In past situations with similar announcements, the dollar initially gained strength but often retraced after traders had time to understand the details. This time, the dollar increased modestly, fueling speculation about a “gap fill,” where prices revert to earlier levels from before the weekend. This pattern suggests that past behaviors often repeat when it comes to policy changes. What’s important now is how traders position themselves. Futures contracts have already incorporated some reactions to the tariffs, so what happens next depends on whether other factors, such as retaliation or increased costs in supply chains, come into play. If traders start to expect responses, like reciprocal tariffs from Brussels or Mexico City, any initial strength in the dollar could weaken, especially if commodities or industrials indicate rising costs or disruptions. We also notice that leveraged accounts often act quickly in this environment. Small changes in implied volatility, which may not matter to long-term investors, can lead to profit-taking or stop-outs. From a structural viewpoint, if the dollar strengthens, it will face resistance at a lower range established last month. Traders often focus on this area when looking for opportunities to counter movements that happen too quickly without new information. This is why risk management is crucial. It’s often better to pay attention to spreads rather than position size when policy changes, not tied to core economic data, influence the market. A currency pair that usually has a more stable relationship with the dollar—especially one with lower volatility—might provide clearer insight than more erratic options. Though there’s limited event risk mid-week, key economic indicators are expected by the end of the week. These will help clarify how market expectations might shift, particularly as geopolitical events increasingly influence short-term sentiment. For now, we are staying cautious, considering the next few sessions as a test to see if the dollar can maintain its initial strength as liquidity returns.

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