^DJI Today: January 22 TACO Trade Tested as Trump Pauses EU Tariffs
The TACO trade moved back into focus after Donald Trump paused new EU tariffs tied to a Greenland framework. The Dow Jones Industrial Average (^DJI) rose to 49,077.24, up 1.21%, as traders leaned into the TACO trade playbook. Relief may be smaller this time because markets now expect Trump to blink. Canadian investors should track cross‑border supply chains, CAD moves, and rate expectations as this policy twist plays out.
Dow Jones today: what moved sentiment
Trump’s pause on new tariffs on Europe, linked to the Greenland framework, eased immediate recession fears. The signal reduced tail-risk pricing in cyclicals and financials and lifted Dow breadth. Traders also trimmed volatility hedges, helping futures hold gains through the session. The TACO trade gained attention again, but the market’s default expectation for a pause means the reaction was controlled, not euphoric.
For Canada, tariff relief supports autos, industrials, and energy services with U.S.-EU exposure. A firmer risk tone tends to weaken the U.S. dollar against the loonie, which can temper returns on U.S. assets in CAD terms. We see domestic rails and parts suppliers as key barometers. Keep an eye on CAD-sensitive hedges and input costs if Trump tariffs Europe reappear suddenly.
How the TACO trade works now
The TACO trade assumes Trump talks tough, edges toward action, and then backs off. Traders buy dips in risk assets, fade volatility, and rotate into cyclicals when escalation pauses. It worked in prior episodes, but repetition breeds complacency. If the White House pushes further before blinking, the TACO trade can misfire with sharper drawdowns and wider credit spreads.
Recent coverage highlights a pattern where “Trump always chickens out,” shaping trader behavior and smaller relief rallies this time. See source. Yet concentration in the TACO trade raises crowding risks, as noted by source. We think selective positioning beats blanket risk-on, especially for Canadian portfolios.
Technical view after the pop
The Dow closed at 49,077.24, up 1.21% on the day, with RSI at 65.04 and CCI at 136.81, both near overbought zones. Williams %R at -5.30 also flags stretched conditions. MACD remains positive, and ADX at 21.09 shows trend strength is moderate. This supports buy-the-dip tactics over chasing strength, a common TACO trade approach when momentum is extended.
Price sits near the Bollinger upper band at 49,496, with the middle band at 48,570 and lower at 47,644. Keltner upper is 49,545, showing limited upside before resistance. The 50-day average near 48,000 and 200-day near 44,933 are key supports. Model projections point to 50,636 monthly and 51,639 yearly, but path will depend on tariff signals.
Scenarios for Canadian portfolios
We assume a pause holds while talks continue on the Greenland framework. In that case, we prefer high-quality cyclicals, U.S. industrial exposure hedged back to CAD, and selective financials. A softer U.S. dollar would support CAD returns. The TACO trade can still work, but we would scale in on pullbacks, not at resistance, and keep position sizes moderate.
If Trump tariffs Europe return with higher rates or broader scope, expect a quick hit to autos, machinery, and luxury names, with spillover to Canadian suppliers. Credit spreads could widen, and the loonie may weaken on risk aversion. We would add duration gradually, raise cash buffers, and trim crowded TACO trade positions tied to Europe-sensitive revenue.
Use a staged approach. Set add points near 48,570 and 48,000, the middle band and 50-day. Place stops below 47,600. Hedge USD exposure if CAD strengthens on reduced tariff risk. If headlines worsen, shift toward defensives and cash. Keep options hedges light but ready, since quick reversals are common in a crowded TACO trade.
Final Thoughts
Today’s pause on EU tariffs revived the TACO trade, but the reaction was measured because investors expected it. For Canadian portfolios, we see room to participate without overreaching. Respect overbought signals, add on dips toward 48,570 and 48,000, and keep risk controls tight. Watch CAD moves, because currency can swing returns more than sector selection on short time frames. If Trump tariffs Europe resurface, reduce cyclical exposure and protect cash flows. The best use of the TACO trade is tactical, not permanent. Stay flexible, keep hedges practical, and let levels, not headlines, drive entries and exits.
FAQs
What is the TACO trade and why does it matter today?
The TACO trade is a pattern where Trump talks tough on policy, edges toward escalation, then backs off. Traders buy risk on pauses, fade volatility, and rotate to cyclicals. It matters today because a tariff pause tied to a Greenland framework sparked a measured rebound, but crowding makes late entries risky.
How could Trump tariffs Europe affect Canadian investors?
Tariffs on Europe can hit autos, machinery, and luxury goods, with spillovers to Canadian suppliers and rails. Risk-off moves often lift the U.S. dollar, which can help CAD-based investors owning U.S. assets, but it may raise import costs. We suggest smaller positions, clear stop levels, and flexible hedges.
Is the Dow overbought after today’s move?
Short-term signals are stretched. RSI near 65, CCI above 130, and Williams %R near -5 suggest limited near-term upside. We prefer adding on dips toward 48,570 or 48,000 rather than chasing strength. If momentum cools without bad news, the trend can resume. If tariffs return, risk increases quickly.
What are practical steps for Canadians using the TACO trade?
Plan entries near support, not at resistance. Hedge U.S. exposure to CAD when risk improves and unhedge if tariff noise worsens. Keep positions smaller, use staged buys, and predefine exits. If headlines shift against you, reduce cyclicals quickly and move toward defensives, cash, and selective duration.
Disclaimer:
The content shared by Meyka AI PTY LTD is solely for research and informational purposes. Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.
