Markets to watch this week

Prospects of prolonged trade tensions spur risk-off sentiments

US President Donald Trump’s follow-through on tariffs has stirred fresh market turbulence in the new week, as initial expectations for a more gradual roll-out in US tariffs were met with some disappointment. No doubt US has the upper hand in terms of trade dynamics and economic environment, which may justify its aggressive stance in pressuring its allies to advance his cause. But prolonged trade tariffs will also force the US to juggle short-term inflation risks and potential long-term growth impacts, which will keep the Federal Reserve (Fed) on edge in managing its monetary policy path.

With the uncertainty ahead, markets have acted as expected – a wave of de-risking which saw global equities unwind while the safe-haven US dollar and gold held up. Nevertheless, there are some dip-buying observed in today’s session, reflecting hopes that some form of consensus can still be reached in talks between President Trump and the leaders of Canada and Mexico. Whether any resolution can be achieved remains uncertain, but this market is likely to be one that is headlines-driven in the days ahead.

US Dollar Index: Tariffs raise short-term US inflation risks

Hopes for a more gradual rollout or potential delays of tariffs have been dashed. While the inflationary impact from tariffs may be one-off, persistent pricing pressures are likely to keep the Fed anchored in its hawkish stance for now. Short-term inflation risks should keep the US dollar supported, with no immediate resolution in sight. Meanwhile, the daily moving average convergence/divergence (MACD) has stabilised at a more neutral level, potentially setting the stage for the next leg higher. The daily relative strength index (RSI) has also reclaimed its midline, signalling renewed buying momentum. The key risk, however, is that dollar positioning remains heavily skewed to the long side.

Key levels:

• R2: 110.95
• R1: 109.81
• S1: 108.26
• S2: 106.88

US Dollar Index chart:

Spot Gold: Attractive hedge against geopolitical tensions

With tit-for-tat trade tensions likely to drag for longer, gold may remain a compelling hedge against risks. While a stronger US dollar presents headwinds, gold’s downside has been relatively modest thus far, underscoring its resilience amid safe-haven demand. The 2018 trade war dynamics suggest that the traditional inverse relationship between gold and the US dollar may be detached—a pattern that could repeat this time as well. A broad rising channel since April 2024 validates an ongoing upward trend, with support expected at the US$2,720 level.

Key levels:

• R2: 3,000
• R1: 2,850
• S1: 2,720
• S2: 2,580

Spot Gold chart:

AUD/JPY: Risk-off drags AUD/JPY to four-month low

Escalating trade tensions have fuelled a near-term risk-off environment, dragging AUD/JPY to a four-month low and breaking below its multi-month range. The pair's daily RSI has struggled to hold above its midline, while the daily MACD has rolled over from the zero mark, signalling broader bearish bias. Any near-term rebound may now face a test of resistance around the 96.35 level, where a previous upward trendline may stand in the way.

Key levels:

• R2: 98.55
• R1: 96.35
• S1: 93.61
• S2: 90.24

AUD/JPY chart:

US 500: Back to retest key support confluence

The bearish reaction to the US tariff announcement has pulled the S&P 500 back to retest a key support confluence around the 5,894 level. Further breakdown of the daily Ichimoku Cloud support could intensify selling pressure, potentially opening the door for a move toward the broader channel trendline support near the 5,700 level. The daily RSI has dipped back below its midline, while a bearish crossover on the daily MACD reinforces the downside bias. With the tight tariff timeline limiting room for negotiations, the US seems to adopting a tough stance, which could heighten risks of further escalation.

Key levels:

• R2: 6,420
• R1: 6,100
• S1: 5,894
• S2: 5,700

US 500 chart:

Singapore Blue Chip: Lower channel trendline as near-term support

Downside in the Singapore Blue Chip Index has been relatively contained amidst the global risk-off sentiments, with the index generally viewed as a more defensive play in the region. A prolonged high-rate environment driven by tariff-induced inflation could also support the local banks' interest income, which are key constituents of the index. Technically, a lower channel trendline seems to serve as near-term support, with the defending of a new higher low at the 381.73 level potentially reinforcing the prevailing upward trend.

Key levels:

• R2: 400.00
• R1: 392.18
• S1: 381.73
• S2: 367.19

Singapore Blue Chip chart: