Insights 
VT 
Markets began the week with caution due to President Trump’s announcement of 100% tariffs on Chinese imports. This has shifted focus onto risk sentiment as the primary market driver, with no major economic data releases scheduled for Monday.
The US Dollar experienced selling pressure, particularly against the Japanese Yen, amidst Trump’s tariff threats. The USD Index saw a modest recovery to around 99.00, while US stock index futures increased between 1% and 2%. In contrast, bond markets are closed for the Columbus Day holiday, yet stock exchanges remain operational.
Market Sensitivity And Movements
Gold reversed its earlier losses and reached a new peak above $4,070, driven by market uncertainties. The EUR/USD held steady around 1.1600, with French political developments slightly influencing the pair. GBP/USD traded just below 1.3350, and the UK is set to release labour market data on Tuesday.
In terms of risk sentiment, the article explains “risk-on” and “risk-off” terms, stating the behaviours of financial assets such as stocks, bonds and commodities during different market sentiments. The Australian, Canadian, and New Zealand dollars tend to rise in “risk-on” markets, while the US Dollar, Japanese Yen, and Swiss Franc strengthen during “risk-off” periods.
With the threat of 100% tariffs on Chinese goods by November 1st, we must prepare for a significant spike in market volatility. Looking back at the 2018-2019 trade disputes, the CBOE Volatility Index (VIX) repeatedly pushed above 25 on similar escalations. We should anticipate the VIX, which has been relatively subdued, to test these higher levels, making long volatility positions via VIX futures or options on the S&P 500 attractive.
Gold’s surge to a new peak over $4,070 is the clearest signal in the market right now. This is a classic flight to safety, and we expect this trend to continue as geopolitical and economic uncertainty deepens. We should consider adding to long positions through gold futures or call options, as the metal will likely remain the primary hedge against the fallout from this trade war.
Equity And Currency Implications
The outlook for equities is decidedly negative, especially for companies with significant supply chain exposure to China, like those in the tech and retail sectors. Historically, investment banks estimated that a 25% tariff on all Chinese goods could cut S&P 500 earnings by up to 10%; a 100% tariff would be far more damaging. We should be using derivatives to hedge or establish short positions, for example, by buying put options on the Nasdaq 100 and S&P 500 indices.
The US Dollar presents a complicated picture, torn between its role as a safe-haven asset and the direct economic harm these tariffs could inflict on the US. This uncertainty suggests a big move is coming, but the direction is unclear, making strategies like long straddles or strangles on major USD pairs worth considering. The data showing the dollar is gaining against the Yen but is weaker against the Aussie dollar highlights this market confusion.
Currencies of nations reliant on commodity exports, such as the Australian and New Zealand dollars, are highly vulnerable. A trade war of this magnitude threatens to slow global growth, which would crush demand for raw materials and weaken these currencies. We see opportunities in shorting the AUD/USD pair, especially given that China is Australia’s largest trading partner, accounting for over 30% of its total trade in recent years.
The period between now and the November 1st deadline will be extremely sensitive to news and political statements. This environment is ideal for short-term options trading, as implied volatility will remain elevated and any comment from Washington or Beijing could trigger sharp, intraday moves. We need to remain nimble and ready to adjust positions based on the flow of headlines.
