Amazon and Apple reported strong earnings for Q3, exceeding analysts’ expectations and showcasing the resilience of Big Tech. In response, President Trump announced a 35% tariff on Canadian goods starting August 1. However, goods covered by the USMCA agreement and energy products like oil will not be affected. This controversial decision raises questions since the U.S. has a manufacturing trade surplus with Canada. Additionally, a broader range of tariffs has been announced, including a 39% tariff on Swiss goods, which has impacted the Swiss franc. A complete list of affected countries and products will be released in a week. Japan’s Finance Minister Shunichi Kato criticized the yen’s value, suggesting it is being influenced by speculators, and hinted at possible intervention. Despite these warnings, USD/JPY remained steady above 150.70.

Chinese Economic Performance

In China, the S&P Global Manufacturing PMI fell to 49.5 in July, below the expected 50.3 and June’s 50.4, indicating that factory activity is contracting. This result is slightly better than the official NBS figure of 49.3, showing ongoing weakness in China’s industrial sector. Meanwhile, major currencies remained stable as markets awaited the U.S. nonfarm payrolls report. The new tariffs add uncertainty to the markets, likely leading to increased volatility. We have seen similar situations during the 2018-2019 trade wars when the VIX index spiked after unexpected announcements. Option premiums are expected to rise, offering chances to buy protection or sell overpriced volatility based on your risk appetite. The 39% tariff on Switzerland targets high-value exports like watches and pharmaceuticals, which make up over 45% of Swiss goods sent to the U.S. annually. This makes bearish trades on the franc appealing. It may be wise to buy USD/CHF call options, as the Swiss National Bank may hesitate to intervene aggressively after recent rate cuts. For Canada, the situation is more complex due to the USMCA and energy exemptions reducing the impact. Still, the headline tariff might create negative sentiment, pushing USD/CAD higher, possibly nearing the 1.3800 level seen in early 2024. We should consider long positions in USD/CAD, while keeping in mind that the actual economic damage could be limited.

Opportunities in Currency Markets

In Japan, the market is challenging the Ministry of Finance more openly, compared to the fear that followed the interventions of late 2022. With verbal warnings proving ineffective, USD/JPY is likely to trend upward, making call options attractive on any dips. Traders may continue to push the pair higher to test the Ministry’s limit. The gap between a strong U.S. tech sector and a weakening Chinese economy creates a unique trading opportunity. Following remarkable earnings from Apple and Amazon, we can adopt a bullish stance on U.S. markets with call options on the Nasdaq 100. Meanwhile, China’s contracting manufacturing PMI at 49.5 supports buying put options on China-focused ETFs like FXI. All these positions will be tested by the U.S. nonfarm payrolls report released today. A strong jobs number, surpassing the expected 190,000, would boost the dollar’s strength and support these trends. However, a significant miss could lead to a sharp market reversal as investors reassess the U.S. economy’s health. Create your live VT Markets account and start trading now.

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