Trump’s Tariff Reversal Boosts Markets While Trade War Escalates
The gold market (XAU/USD) is witnessing a significant surge as the U.S. dollar experiences high volatility due to ongoing trade tensions. President Donald Trump’s reversal of tariffs on Canadian and Mexican imports provided a boost to the S&P 500, signaling a temporary de-escalation in North American trade conflicts. However, tariffs on Chinese imports remain in place, leading to immediate retaliatory measures from Beijing.
China has imposed tariffs of 15% on U.S. coal and LNG, while crude oil, farm equipment, and automobiles now face a 10% tariff. Additionally, China has launched an anti-monopoly investigation into Google, listing U.S. firms on its “unreliable entities” list, escalating trade war fears between the two largest global economies.
Economic Indicators and Market Impact
Despite geopolitical tensions, economic conditions remain favorable. The Moody’s Baa corporate bond spread has narrowed to 1.45%, the lowest level since 1997, indicating strong corporate credit availability. Meanwhile, the ISM Manufacturing PMI climbed to 50.9%, signaling economic expansion and increased manufacturing activity driven by strong consumer spending and business investment.
A prolonged U.S.-China trade war is expected to strengthen the U.S. dollar (USD), as global economic uncertainty drives investors toward safe-haven assets. The U.S. maintains a trade deficit with China, meaning tariffs on Chinese imports could disproportionately impact Chinese exports. Additionally, inflationary pressures from tariffs could push the Federal Reserve toward a more hawkish stance, potentially leading to higher interest rates. Rising long-term Treasury yields could reinforce USD strength while negatively impacting stocks and corporate borrowing costs.
Gold Prices Rally as Central Banks Shift Away from U.S. Treasuries
Gold (XAU/USD) is surging as central banks seek alternatives to U.S. Treasuries. China’s decision to impose export controls on rare earth metals, including tungsten and molybdenum, may disrupt global supply chains, increasing demand for safe-haven assets like gold. If these restrictions persist, industries dependent on these materials, such as clean energy and electronics, could face production challenges, further fueling economic uncertainty.
Gold Technical Analysis: Bullish Momentum Continues
Gold Daily Chart – Ascending Broadening Wedge
The daily gold chart indicates a breakout above $2,795, initiating a strong upward momentum. The next target is the $3,000 price zone, supported by bullish signals from the 50-day and 200-day SMAs. Although the RSI is approaching overbought territory, sustained economic uncertainty could continue driving gold prices higher.
Gold 4-Hour Chart – Confirmed Bullish Trend
The 4-hour gold chart confirms the ascending channel breakout, with gold surging past $2,720 and $2,795, signaling strong bullish momentum.
10-Year Treasury Note Yield Analysis
Daily Chart – Inverted Head and Shoulders Pattern
The U.S. Treasury yield daily chart shows an inverted head and shoulders formation, with yields correcting from 4.80%. Current support near 4.45% suggests a potential move towards 5%, reinforcing bullish expectations.
4-Hour Chart – Ascending Channel Pattern
On the 4-hour chart, U.S. Treasury yields remain in an ascending channel, with key support at 4.45%. While the RSI is declining, the bullish daily bias suggests the yield could soon find support and resume its upward movement.
U.S. Dollar Index (DXY) Shows Strong Volatility
Daily Chart – USD Facing Key Resistance at 110
The U.S. Dollar Index (DXY) remains volatile above 107, with resistance at 110. A candlestick wick at the 110 level indicates potential short-term downside, but broader economic uncertainty continues to drive USD strength.
4-Hour Chart – Volatility Persists
The 4-hour U.S. Dollar Index chart shows strong fluctuations within an ascending broadening wedge pattern. The 107 and 105.60 levels remain key support zones. Market participants are closely watching the upcoming Non-Farm Payroll (NFP) report, which could provide further direction for the USD in the near term.
Conclusion: Trade War Uncertainty Fuels Market Volatility
The escalating U.S.-China trade conflict is creating a complex interplay between currency markets, interest rates, and commodities. A stronger U.S. dollar could challenge U.S. exporters, while rising gold prices reflect increased risk aversion among investors. If trade tensions persist, expect gold to continue rallying alongside the USD, presenting a challenging environment for global trade and economic stability.
