How to trade the Reciprocal Tariff “Liberation” Day Market
On April 2, President Trump & Co. are expected to turn its reciprocal tariff threats into reality.
It will not only be the reciprocal tariff details but how other countries respond that will dictate how this plays out for markets.
In this regard, I saw Commerce Secretary Howard Lutnick say that it will take months to see the full response to reciprocal tariffs.
So, the initial reciprocal tariff announcement is only part of the story.
President Trump has called April 2 “Liberation Day,” when the set of reciprocal tariffs designed to address U.S. trade imbalances will be revealed. It is not clear what is being liberated, trade or companies having an excuse to raise prices.
In any case, there are still more questions waiting to be answered as this major event risk plays out.
Will other countries retaliate with tariffs of their own?
Will reciprocal tariffs be less severe than feared or at least provide clarity?
In this regard, President Trump provided a glimmer of hope when he said, “The word flexibility is an important word… So there will be flexibility but basically it is reciprocal.” Keep in mind that as traders we have learned, sometimes the hard way, that his actions speak louder than his words.
Will other countries try to negotiate and offer concessions to resolve differences with the U.S.?
In this regard, there was a report on Friday that the EU plans concessions after reciprocal tariffs hit. The chart below shows the EURUSD reaction (up) to the news:
The issue here is whether the EU (and other countries) definition of concessions match that of President Trump.
So, how does a trader approach April 2 with a strategy to trade what will be a choppy, potentially volatile headline driven market?
1) Fasten your seatbelts, it will be a bumpy ride?
2) Get access to a good news feed (Try Newsquawk free for 7 days)
3) Don’t treat the reciprocal tariffs announcement as the final say. This will play out in the days, weeks and months ahead.
4) Look at U.S. stocks for the risk on/risk off reaction?
5) Use short term charts until the longer term picture becomes clearer.
6) Logic says there is a risk of a buy the rumor sell the fact or a relief reaction if the reciprocal tariffs are not as severe as feared or at least provide some clarity. This would be logical in an environment where President Thump’s reactions often defy logic. In other words,it pays to expect the unexpectec.
The bottom line is between an active economic calendar and tariff headlines, news trading algos will be in overdrive. This suggests keeping it close to the vest where the old trading adage, it is the reaction to news not the news itself that matters, should prove true once again.
ADDENDUM
Reports confirm President Trump will make the reciprocal tariff announcement in the Rose Garden at 4PM Wed
This will come at the thinnest time for the USD session and after cash stock markets close.
This suggests a choppy, likely volatile reaction that will carry over into the Far East.
Hears the point… while a better reading will be once the dust settles and the market trades with better liquidity on Thursday, the initial reaction will likely be exaggerated with potentially whipsaw moves given the time of day in thin liquidity.
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