EUR/USD, USD/JPY, S&P 500: Bond Bears Bite as Markets Reset Tariff Risks

• Bond bulls lose grip as U.S. 10-year Treasury futures post a bearish engulfing candle, signaling a potential top
• EUR/USD rips higher, clearing 1.0600 as dollar weakness, military spending, and technical buying fuel gains
• USD/JPY rebounds sharply, with a bullish pin candle pointing to test of resistance at 151
• S&P 500 futures bounce, but a close below the 200DMA could open the door to deeper losses
• Tariff fears ease after U.S. Commerce Secretary Howard Lutnick hints at a potential deal with Canada and Mexico.

Summary

Get set for a risk rebound in Asia—perhaps even a risk rip—after U.S. Commerce Secretary Howard Lutnick’s post-market remarks on Tuesday sparked a partial unwind of recent tariff concerns.

Just hours after Washington slapped fresh 25% tariffs on Canadian and Mexican imports, Lutnick dropped a bombshell on Fox Business, suggesting Donald Trump may be open to a compromise by meeting both nations halfway on tariffs. He said a deal would probably be announced Wednesday.

Markets reacted sharply, with equity index futures squeezing higher while bond futures slid. Currencies battered by tariff uncertainty extended earlier gains, led by EUR/USD which surged 1.3%.

Call it the latest iteration of the Trump “put” or proof that tariffs remain a negotiating tactic rather than a done deal—either way, Lutnick’s comments (assuming Trump doesn’t contradict them) have eased some of the risk ahead of major U.S. data on Wednesday, including the ISM services PMI and ADP jobs report, which land just two days before non-farm payrolls.

Weakening data and fears that tariffs would choke economic activity had weighed on risk assets, but this temporary reprieve may be enough to lift sentiment for now.

Benchmark Bond Futures Signal Turning Point

Source: TradingView

The above chart tracks U.S. 10-year Treasury note futures. Until Tuesday, it had been a rich hunting ground for long bond bulls. However, price and momentum signals over the past 24 hours suggest we may have seen a near-term top for bond prices—implying the opposite for yields.

The failure to break above the December 2024 swing highs was followed by a sharp reversal, delivering a bearish engulfing candle on the daily timeframe. While a cluster of known support levels sits just below, the close beneath the 200DMA and RSI (14) breaking its uptrend point to a growing risk that the bullish trend has run its course. That means trades premised on lower U.S. Treasury yields may need to be reassessed in the near term.

EUR/USD Delivers Powerful Bullish Break

Source: TreadingView

The topside break in EUR/USD flagged on Tuesday came to fruition in style, with dollar weakness, increased European military spending, and technical buying overwhelming sellers parked from 1.05-1.0530. The common currency eventually pushed through resistance at 1.0600.

That level may now act as support, offering a platform for bulls targeting an extension towards the next layer of resistance at 1.0668, followed by the 200-day moving average. Momentum remains with the bulls, with RSI (14) and MACD signals favouring buying dips over selling rips in the near term.

USD/JPY Bulls Fight Back Hard

Source: TradingView

USD/JPY was always going to be one to watch on a day like yesterday, given the damage an unwind of yen carry trades caused in early August last year when concerns over the U.S. economy last spiked.

At one stage, the pair dipped below the December swing low of 148.65, sliding to just above 148.00 as risk assets traded near session lows. However, the price action into the close was undeniably positive for risk, with a bullish pin candle hinting at a potential extension of the rebound towards known resistance at 151. The 148.65 level remains a key downside marker.

Momentum indicators continue to skew moderately bullish, reinforcing the inclination to buy dips if they occur.

S&P 500 Futures: 200DMA Saves the Day

Source: TradingView

S&P 500 futures face a make-or-break session technically after breaching long-standing uptrend support before bouncing into the close following a brief dip below the key 200-day moving average.

Excluding Lutnick’s comments, the overall price and momentum picture remains bearish. The price not only closed through the uptrend but also below 5808, a key horizontal level dating back to October last year. RSI (14) and MACD are trending lower—momentum signals that typically favour a bearish bias.

However, the bounce off the 200DMA may encourage bulls looking for a squeeze after recent losses. Aside from 5808 and trendline resistance around 5875, other topside levels of note include 6000, where bullish probes have repeatedly stalled over the past week, and the 50-day moving average.

A break and close below the 200DMA would be an undeniably bearish signal, potentially opening the door for a test of 5724 and a price gap down to 5670.

-- Written by David Scutt

Follow David on Twitter @scutty