Market volatility surged on Monday as fears of a U.S. recession rattled investors, with U.S. President Donald Trump’s comments fueling the unwinding of riskier assets.
During an interview on Fox News, Trump refrained from directly predicting a recession but described the economy as being in a “period of transition” due to his administration’s sweeping policy changes. “I hate to predict things like that. There is a period of transition, because what we’re doing is very big. We’re bringing wealth back to America,” he said.
This statement suggests a tolerance for near-term economic weakness, echoing his earlier approach to the stock market during his second term. Trump’s shift in tone is evident—gone are the frequent social media posts celebrating Dow records, and it appears he is not prioritizing stabilization in the face of increasing market volatility.
Signs of Economic Slowdown
While Trump’s remarks may have sparked the risk-off sentiment, economic warning signs had already been mounting. Citigroup’s U.S. Economic Surprise Index has been negative since mid-February, reflecting weaker-than-expected data despite lowered forecasts. The Atlanta Fed’s GDPNow model predicts an annualized first-quarter contraction of -2.4%, highlighting concerns not just over tariff uncertainties but also growing issues in the labor market.
Additionally, bond markets are signaling unease. Fed funds futures now price in more than three 25bp rate cuts in 2025, while the U.S. 3-month/10-year Treasury yield curve briefly inverted earlier this month. The MOVE index, which tracks bond market volatility, surged to its highest level since the last presidential election, signaling increased market uncertainty.
While Trump’s comments may have been the trigger, the underlying conditions had been building for weeks. Interestingly, some market movements appeared more technical than fundamentally driven, suggesting that traders’ positioning may have played a role in amplifying the volatility.
FX Markets: Focus on USD/JPY and AUD/USD as Risk Sentiment Shifts
In the FX market, USD/JPY stands out as a key pair to watch, particularly in Asia, where its relationship with risk appetite is crucial, especially concerning yen carry trades. The pair hit a bottom ahead of U.S. equity futures during the North American session, signaling potential forced liquidations in riskier assets. If USD/JPY continues to slide, it could point to further weakness in risk-sensitive assets.
Currently, USD/JPY is trapped in a descending channel, having bounced off trendline support on Monday, mirroring Friday’s price action. Immediate downside targets include nearby horizontal support levels, with a break beneath these levels potentially paving the way for a move toward ¥146 or even ¥144.23. On the upside, ¥148 remains a key resistance level, with the next layer of resistance at ¥148.65. Momentum indicators like the RSI and MACD are firmly bearish, suggesting a preference for selling rallies and any downside breaks.
Meanwhile, AUD/USD also showed weakness to start the week. The pair completed a bearish three-candle evening star pattern on Friday, signaling further downside potential. AUD/USD has been closely tracking its 50-day moving average (DMA) in recent months, and the slide on Monday stalled around this level. Key support levels below include .6238 and .6188, while resistance may come at .6300, with the more significant level being the swing high of .6364 from March 6. Momentum indicators remain bearish, supporting the near-term downside bias.
Nasdaq 100: AI Euphoria or Just a Correction?
The Nasdaq 100 also captured attention after futures saw their largest one-day drop since 2022, breaking through uptrend support that has been in place since early 2023, when AI-driven optimism took hold. The breach of the 200DMA last week has raised concerns about a potential unwind of AI-driven market euphoria. With intensifying competition from China and a shifting market environment, the conditions seem ripe for a potential reset in the tech-heavy index.
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