Forex markets open the week with typically thin liquidity until more Asian centres join. This can lead to fluctuations in prices, so caution is advised.

Weekend news saw a 30% tariff imposed by Trump on the EU and Mexico, effective from August 1. As a result, the USD experienced a minor increase, with potential for a gap fill based on previous months’ reactions to similar announcements.

Quiet Asian Open

That opening summary suggests Monday began in the same quiet fashion usual for foreign exchange: fewer trades coming through before Tokyo and other major Asian markets are fully active. Trade volumes remain low during that early window, which makes the movement of prices more erratic — not because there’s more volatility overall, but instead due to the thinner flow. In low liquidity conditions, even modest orders can prompt outsized shifts, so one would do well to hold off on aggressive positioning right out of the gate.

Over the weekend, there was news out of the United States. A fresh round of tariffs — specifically, 30% on selected goods from the European Union and Mexico — was announced, taking effect from 1st August. That type of policy move does not land in a vacuum. When similar adjustments were floated previously, the dollar showed knee-jerk strength in the early hours but often retraced once markets had time to parse the details. This time, the dollar crept higher — modestly, but with enough momentum to raise talk of a “gap fill,” where prices return to levels they traded at before the weekend. The intent behind referencing recent patterns is clear: behaviour tends to rhyme when policy decisions like this move the needle.

For our part, what we’re watching now is positioning. Because futures contracts have already priced in parts of this reaction, the path forward depends on whether expectations of retaliation or supply-chain cost pressures get picked up elsewhere. If markets start baking in a response — say, reciprocal tariffs from Brussels or Mexico City — any early resilience in the dollar may falter. That’s especially the case if commodities or industrials start to sniff out higher costs or flow disruptions across borders.

Beneath the surface, we are also aware that leveraged accounts tend to be quite tactical in this environment. Even small moves in implied volatility — barely noticeable to long-term holders — can trigger a round of profit-taking or stop-outs. From a structure standpoint, any near-term spike in dollar strength now needs to contend with the lower band of last month’s resistance. That area tends to become a focal point for those looking to fade moves that extend too quickly without new data behind them.

Risk Management Strategies

It’s for this reason that risk management becomes paramount. We find it helpful to dial in on spreads more than outright positioning when policy moves external to core economic data start to drive flows. A cross that historically behaves in a more stable fashion versus dollar pairs — especially one with lower beta — may offer better visibility than options with a wider range.

While event risk remains limited mid-week, forward-looking indicators are due at the end of the week. These will give us better insight into how underlying rate expectations may adjust, especially now that geopolitical headlines are taking a more directional role in short-term sentiment. For now, we’re sitting tight, viewing the next few sessions as a testing period for whether this knee-jerk strength in the greenback can hold up once liquidity returns in earnest.

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