Recent events in US-China relations have led to an increased demand for safe-haven assets, while risk-sensitive assets are under pressure. President Trump announced a 100% tariff on China and placed export controls on key software in response to China’s restrictions on rare earth materials. Consequently, the DXY is around 99.25.

Negotiation and Market Impact

China has urged the US to stop imposing new tariffs and to focus on negotiations. The US has shown a willingness to discuss a deal, but traders expect ongoing volatility leading up to the APEC meeting. Currencies closely tied to growth, like the AUD, NZD, MYR, and RMB, are likely to experience fluctuations. In contrast, safe-haven currencies like gold, JPY, and CHF may remain popular. The DXY might continue to gain momentum, though a temporary pullback could occur. Support levels are at 98.40 and 98, while resistance sits at 99.80 and 100.20. Upcoming economic reports, including NFIB small business optimism, empire manufacturing, and industrial production, should be watched closely. The US CPI release is now scheduled for October 24. These factors are important due to the unpredictable nature of trade policies and their effect on currency markets. After last Friday’s unexpected trade developments between the US and China, we’re witnessing a clear risk-off move. The Dollar Index is retreating from recent highs and is currently around 99.25, as traders seek safe-haven assets. The CBOE Volatility Index (VIX), a key measure of market anxiety, has surged over 25% in the past two sessions and is now above 22. This uncertainty around trade policy suggests that volatility may remain high in the coming weeks, particularly before the APEC meeting. Traders might consider strategies that benefit from these price movements, such as buying options on currency pairs like the AUD/USD or broad market indices. Looking back to 2018-2019, similar trade disputes resulted in spikes in implied volatility that rewarded those who held long option positions.

Safe Haven Currencies and Trading Strategies

The Japanese Yen and Swiss Franc are expected to stay strong, especially against the dollar if tensions do not ease. Gold has already broken above the $2,400 per ounce mark, a significant psychological level. Traders might find success using call options on gold or yen futures to capitalize on this trend toward safety. Although the long-term trend for the dollar may still hold, current geopolitical risks could limit further gains for now. A deeper pullback toward the 98.40 support level seems possible. Selling DXY futures or buying at-the-money puts on a dollar-tracking ETF could be wise for positioning against this short-term weakness. The upcoming economic data, including this week’s Beige Book and industrial production figures, will be closely monitored for signs of economic damage from the new tariffs. Delaying the crucial US CPI data until October 24 adds to the uncertainty, leaving the market without a key inflation measure. This data gap might cause sentiment to drive trading in the coming week. Create your live VT Markets account and start trading now.

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