Markets on edge: FX liquidity worries, tariff tensions, and rising geopolitical pressures

Global markets are grappling with mounting uncertainties on multiple fronts—ranging from emerging fissures in foreign-exchange liquidity, to a more cautious outlook for the US equity benchmark, to new signs of geopolitical strain that threaten to disrupt energy flows. Here is a summary of the latest developments:

FX market liquidity concerns

In the world’s largest financial market—foreign exchange—there are rising worries about a “liquidity mirage” as technological fragmentation and shifting trading practices create the appearance of plentiful liquidity that may not hold in times of stress. Recent episodes, such as rapid swings in the yen, highlight how sudden and large price moves can occur when too many participants rush to exit positions at once. Although day-to-day currency volatility has, at times, appeared subdued thanks to electronic trading tools, some major institutions caution that the system could be more fragile than it looks, especially if sharp selloffs or a single catalyst lead to one-sided order flow.

US equity outlook turned more cautious

Amid signs of slowing economic activity and lingering trade tensions, at least one major investment bank has recently lowered its year-end target for the S&P 500. The revised forecast points to a modest gain from current levels, but is significantly below earlier projections. The more pessimistic view reflects a higher perceived risk of recession and the potential that new tariffs could undercut corporate earnings further. Other forecasters also suggest upside for equities could be limited until growth indicators turn decisively more positive or global trade disputes show signs of resolution.

Tariff uncertainties pressure global stocks

Equities around the world have retreated on concerns that upcoming US tariff announcements will broaden to include imports from multiple regions and industries. These worries have spurred a dash into traditional havens such as gold and US Treasuries, pushing gold to repeated record highs. Many investors are also factoring in the likelihood that central banks—particularly in the US and Europe—will remain on track or even accelerate plans to cut interest rates if the trade outlook deteriorates further. In this environment, sectors most exposed to global trade, including industrial metals, autos, and certain technology stocks, have seen the sharpest declines.

Heightened tensions over Russian oil

Another major development affecting energy markets is the US administration’s public frustration over Russia’s role in Ukraine, with the possibility of “secondary tariffs” on buyers of Russian oil being mentioned. At the same time, there have been fresh signals that any perceived backtracking on resource agreements in other regions could provoke additional responses. Even though the immediate effect on oil prices has been mixed—partly because such measures remain only a threat—traders in the energy market are monitoring geopolitical announcements closely. Any significant disruption to large suppliers could feed inflationary pressures and weigh further on global growth prospects.

Looking ahead

Central bank policies: Many observers expect the Federal Reserve and the European Central Bank to keep a close watch on fresh data releases for signs of a downturn; additional monetary easing could be on the table should trade-related strain intensify.

Equity market reaction: With at least one lower US equity target on the books, investors are reassessing valuations and growth expectations in light of persistent trade headlines.

Oil and FX volatility: Rising tensions over Russian and other oil supplies may amplify price swings, and the recent spotlight on currency-market liquidity highlights the potential for larger moves in foreign exchange if surprise events materialize.

Overall, the confluence of trade tensions, geopolitical risks, and concerns over market liquidity underscores the need for careful risk management. Investors are watching closely for any breakthroughs in tariff negotiations, as well as for confirmation that the underpinnings of both equity and currency markets can withstand fresh shocks.

DXY faces renewed downside pressure

The US Dollar Index has resumed its downward trend over the past few days after a period of consolidation lasting several weeks. Technical indicators have moved out of oversold territory, suggesting the possibility of another decline. The next key support level is at 103.75; if this level is broken, it could lead to further declines, potentially targeting 103.0. On the upside, any corrective rebound is likely to be limited and remain below 105.50.

Gold at record highs

Gold started this week on a positive note due to renewed geopolitical tensions, particularly the conflicts between the US and Russia over Ukraine, as well as the US’s threats of military action against Iran. However, the technical indicators for gold are heavily overbought, which suggests limited room for further gains. Even if a conflict erupts in the Middle East, this scenario is likely already priced into the market. Consequently, the risk of buying gold at its record high may be greater than the risk of attempting to capitalize on a short position in the coming days.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

Disclaimer
This is a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. The information contained herein does not constitute a personal recommendation and does not consider your personal investment objectives, investment strategies, financial situation or needs. Squared Financial makes no representation and assumes no liability as to the accuracy or completeness of the information provided, or any loss arising from any investment based on a recommendation, forecast, or other information supplied by Squared Financial.

The information on this site is not intended for any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.