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On Wednesday, investors got a reality check, facing the tantalizing gains and potential rollercoaster ride of a second Trump administration. This twist added a dash of unpredictability to the recent trend of tech stock sell-offs.

In an interview with Bloomberg Businessweek, Donald Trump suggested that Taiwan pay the U.S. for defence, comparing the arrangement to an insurance policy. "Pay up or no coverage!" seemed the new slogan.

But Trump wasn’t the sole market shaker. Bloomberg also revealed that the Biden administration is mulling over new restrictions on the sale of chip-making equipment to China, sending ASML shares on a downward spiral. It looks like the chip war is far from over, folks! And you know the overriding narrative is when chips are down, most stock markets are down.

Meanwhile, in other corners of the market, investors were practically doing cartwheels at the prospect of tax and regulatory relief if Trump is re-elected. Talk about a market-split personality!

Reading between the FOREX lines, it’s clear that Donald Trump had one main message for the Bloomberg Businessweek journalists: the real villain in the U.S. economy's story is the overly buff dollar.

I think manufacturing is a big deal, and everybody that runs for office says you'll never manufacture again. We have currency problems, as you know. Currency. When I was president, I fought very strongly and hard with President Xi and with Shinzo Abe… So we have a big currency problem because the depth of the currency now in terms of strong dollar/weak yen, weak yuan, is massive. (click any gold shaded word for the complete Bloomberg Businessweek Transcripts

But Trump may find that getting a weak dollar is trickier than finding a needle in a haystack when you're cutting taxes, and doubling down on a trade war with China.

As I mentioned in an earlier report, the Trump trade will likely roar back to life in earnest after the July FOMC meeting. In the meantime, let’s dive into some short-term market shenanigans!

Although I'm not usually a fan of technical analysis, it's worth paying attention when the market dances to the tune of price action and momentum on the Yen. USD/JPY has cleanly broken its 50-day moving average at around 158. The USD 1y swap hints that there's room for the yen to strengthen further, assuming the market keeps its eye on rate differentials—something it conveniently ignored for a few weeks.

 All eyes will be on Japan's CPI inflation data, due on Friday, which could set the stage for market expectations on the pace of rate normalization. Whether this marks a turning point depends on the BOJ's policy decision in two weeks. So, stay tuned; the Yen might be the market's next big plot twist!

Markets have turned more dovish than a cooing pigeon, pricing in a total of 64 basis points of rate cuts this year, compared to the Fed's dot plot predicting just one rate cut, kicking off in September. This dovish trend continues with another 100 basis points of rate cuts slated for 2025.

The combination of this and a retracement of the yen has caused the US dollar index to break a critical technical support level of 104. As a result, the index has taken a 2% dive so far this month. Looks like the dollar's been on a slippery slope lately!

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