In March, the Powell Put briefly ignited market risk appetite, but the optimism in the U.S. stock market did not last long.
After the European session began yesterday, U.S. stock futures started to decline again, leading the market into a risk-off sentiment, with currency pairs like EURJPY and AUDJPY plummeting.
Three reasons.
1. As the April 2nd effective date for reciprocal tariffs approaches, the market trading theme has shifted back from &#34;European exceptionalism, East rising and West declining&#34; to &#34;tariff threats.&#34;
Bessent stated on Tuesday that on April 2nd, each country will receive a &#34;tariff number&#34; from the U.S. regarding their trade restrictions, which represents the tariff levels they will face.
Which countries will be hit the hardest? Bessent criticized countries facing high tariffs from the U.S., calling them &#34;the dirty 15,&#34; where 15% of the countries will bear most of the tariffs. The list of these countries has not yet been released, but we can infer from the U.S. trade deficit and tariff rates that the most affected will be India, the European Union, Vietnam, South Korea, and Brazil.
What is the impact of tariffs on the dollar? Here is a dollar smile curve model from JP Morgan.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/134468c1-7c4b-45d0-856c-9cfb3370bd14.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/134468c1-7c4b-45d0-856c-9cfb3370bd14.png"/>
The horizontal axis represents economic conditions (the right side is strong economy, the left side is weak economy), and the vertical axis represents the dollar exchange rate.
<ul>
<li>
Top left: Uncertainty from tariffs leads both the U.S. and other countries into recession, resulting in a global recession, thus the dollar strengthens due to safe-haven demand;
</li>
<li>
Top right: The implementation of large-scale tariffs makes the U.S. economy stronger than other countries, thus the dollar strengthens;
</li>
<li>
Bottom: Tariff delays or unmet expectations lead to resilience in other countries' economies, thus the dollar weakens.
</li>
</ul>
Since February, China's tech narrative and Europe's fiscal stimulus have made other countries' economies perform better than the U.S., placing the dollar at the bottom of the smile curve. As the April 2nd tariff date approaches, the dollar may swing from the bottom of the smile curve towards both sides at any time.
2. Long positions in the euro have become a bit crowded.
According to a Bank of America survey of investors in March, &#34;longing European stocks&#34; is nearing surpassing &#34;longing the U.S. stock market's seven sisters,&#34; becoming the new &#34;crowded trade.&#34;
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/da166b18-97f7-4e75-87f7-4d57476ecb83.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/da166b18-97f7-4e75-87f7-4d57476ecb83.png"/>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/98addd6c-f132-41d3-a66b-08b5fa452954.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/98addd6c-f132-41d3-a66b-08b5fa452954.png"/>
3. Emerging markets are experiencing a stormy turmoil.
The Turkish lira and Indonesian rupiah have both seen significant depreciation, although each has its own domestic reasons:
<ul>
<li>Turkey: The arrest of a presidential candidate has triggered political risks;</li>
<li>Indonesia: The new government has significantly reduced policies, coupled with weak consumption data, disappointing the market;</li>
</ul>
However, the turmoil in these emerging markets is not an isolated event. On one hand, Trump's reciprocal tariffs have severely impacted ASEAN countries, which serve as trade transit points, and the slowdown in the U.S. economy has weakened Asian exports, leading to significant capital outflows from Southeast Asian countries this year; on the other hand, recession fears have triggered a reversal of previous carry trades (risk on: borrowing yen to buy high-yield currencies; risk off: yen appreciates, high-yield currencies collapse).
From the market trend perspective, the market may be overly optimistic about April 2nd, as the implied volatility in the options market continues to decline.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/8d4bf0b8-9ba3-4cd3-8ba6-a6409128ff14.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/8d4bf0b8-9ba3-4cd3-8ba6-a6409128ff14.png"/>
Before the uncertainty of tariffs on April 2nd, the U.S. dollar index may continue to rebound somewhat, with the support level at 103.5 currently looking solid. In risk-averse situations, JPY will continue to outperform high-risk currencies, and USDCNY will maintain a range view of 7.23-7.28.
Author of this article: Fang Yuqi, Source: Good Morning Forex, Original title: &#34;Countdown to a New Round of Tariffs, Are You Ready?&#34;
Risk Warning and Disclaimer
The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk

A new round of tariffs is about to take effect, and market sentiment is shifting towards risk aversion. U.S. stock futures are down, and the yen cross rates have plummeted. On April 2, the U.S. will implement tariffs against various countries, including India, the European Union, Vietnam, South Korea, and Brazil. The uncertainty surrounding the tariffs may lead to a stronger dollar, while emerging markets such as Turkey and Indonesia face depreciation pressure. Investors' long positions in European stocks also appear crowded

- The FOMC's Powell Put briefly boosted market risk appetite, but optimism in U.S. stocks quickly faded.  
- As the April 2 tariff deadline approaches, market focus shifted back to tariff threats, with significant impacts expected on countries like India, the EU, and Vietnam.  
- Emerging markets face turmoil, with currencies like the Turkish lira and Indonesian rupiah depreciating due to domestic issues and external economic pressures, while the dollar may rebound ahead of the tariff uncertainty.

Are you ready for the countdown to the new round of tariffs?