Video Length: 00:07:15

The US Dollar (via the DXY Index) has been treading water the first few days of the new month and the new quarter, seemingly unmoved by intensifying trade tensions with respect to NAFTA and China. But that could change in the days ahead, especially after, overnight, China announced retaliatory tariffs to the tune of $50 billion on imported US goods, scheduled to take place once the US tariffs on Chinese imported goods goes into effect.

There are still ‘off ramps’ available before the tit-for-tat tariffs spiral into a full-blown trade war: the US could rollback its plans to impose tariffs on imported Chinese goods, which in turn would nullify China’s plans to impose tariffs on imported US goods.

But given the central figure in these trade tensions – US President Trump – it seems unlikely that he will be willing to take a ‘loss’ publicly without an offsetting ‘win’ elsewhere. This, of course, means that the US could double-down on its efforts to renegotiate NAFTA, in an effort to save face.

For now, weakness in US equity market futures helping keep the US Dollar afloat; historically, trade tensions have led to USD weakness. But while FX markets have shrugged off the headlines – for now – Gold appears to be primed to take advantage of the risk unfolding (see the above video).

Aside from the newswire, traders would be wise to keep an eye on upcoming US economic data this morning as they pertain to shaping expectations for the Friday release of the March US Nonfarm Payrolls report.

The March US ADP Employment Change release is due to show the world’s largest economy added +205K jobs, a pace that would easily keep the US unemployment rate near 17-year lows. According to the Atlanta Fed’s Jobs Calculator, the US needs to add +106.9K jobs per month in order to keep the unemployment rate at its current level of 4.1%.

Later in the day, the March US ISM Non-Manufacturing/Services Index, which covers roughly two-thirds of economic activity in the United States, is due in at 59.0 from 59.5 – a slight decline but still a robust pace of expansion.