The United States has struck a trade deal with Japan, creating a positive vibe in the market. Japan plans to invest $550 billion in the US, cut tariffs to 15%, and increase rice imports from the US. As a result, Japan’s Nikkei 225 Index jumped over 3.5%, reaching its highest point since July 2024. US stock futures also rose by 0.2% to 0.3%, reflecting this upbeat mood.

US Dollar Performance

This week, the US Dollar weakened, especially against the Swiss Franc. The US Dollar Index stayed just below 97.50 early Wednesday. Prime Minister Mark Carney announced that Canada would shift its trade focus to other allies. The USD/CAD is trading below 1.3600 after dropping over 0.5% on Tuesday. The EUR/USD is down after three days of growth, while GBP/USD holds steady above 1.3500 after a rebound. Gold prices hit a new monthly high of over $3,430 on Tuesday.

Understanding Tariffs

Tariffs are fees on imports meant to help local businesses compete. They are paid at the port, unlike taxes, which are paid at the time of purchase. President Trump aims to use tariffs to strengthen the US economy, targeting major trading partners like Mexico, China, and Canada. We think the new trade agreement creates a “risk-on” environment for stocks. The rise in the Nikkei 225 suggests that traders might want to buy call options on Japanese indices to take advantage of the upward trend. With the CBOE Volatility Index (VIX) below 15, a number that indicates low market fear, conditions look good for ongoing stock market growth. The substantial $550 billion investment from Japan is likely to boost long-term demand for the US dollar. Although the dollar is weak now, we expect this influx to support it in the coming months. Historically, large foreign investments, like those in the late 1990s, have led to a stronger currency. Given Carney’s comments, we see a chance to invest in the Canadian dollar. Statistics Canada recently reported an unemployment rate of only 6.1%, indicating solid economic fundamentals and a potentially stronger currency independent of US trends. We recommend trading this by selling USD/CAD futures or buying put options on the pair. The previous president’s focus on tariffs continues to create uncertainty, benefiting safe-haven assets. Gold, recently trading above $2,340 an ounce, reflects this geopolitical tension, even as overall sentiment improves. We suggest keeping positions in gold call options to guard against sudden negative trade news. Create your live VT Markets account and start trading now.

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