“TACO” Tuesday-on-a-Monday
—a spicy case study in how “Trump Always Chickens Out” trades taste on your P/L
1. What just happened?
- Friday, 23 May – President Trump slaps the market with a “50 % EU mega-tariff, effective 1 June.” Risk assets do a face-plant.
- Sunday night, 25 May – After a “nice call” with Ursula von der Leyen, Trump pushes the deadline to 9 July. Cue collective trader eye-roll: TACO strike!
- Monday, 26 May – Europe wakes up, smells the tortillas, and buys everything that sold off on Friday.
2. The flavour profile
| Instrument | Friday close (pre-TACO) | Monday rebound | 48-hour swing | Two-source check* |
|---|---|---|---|---|
| STOXX 600 | 547.93 (-0.9 %) | 552.32 ( +1 %) | +0.8 % | Morningstar & MarketWatch both print 552.32 at 17:50 CEST, 27 May 2025 (Morningstar, MarketWatch) |
| EUR/USD | 1.1240 (Fri low) | 1.1380 London midday | ~+1.2 % | Forexlive wrap & Reuters FX desk (Forexlive, Reuters) |
| Brent Jul ’25 | $63.90 | $64.4-64.6/bbl by 11:00 GMT | +0.8 % | Reuters energy note & TradingEconomics live board (Reuters, Reuters) |
| WTI Jul ’25 | $60.90 | $61.3-61.5/bbl same time stamp | +0.8 % | Reuters & TradingEconomics (Reuters, Trading Economics) |
*Quotes are front-month futures, matched within the bid-ask and time-stamped.
3. Decoding the TACO recipe
Trump Always Chickens Out:
a repetitive pattern where maximal-threat headlines are walked back within one news cycle, flipping markets from panic to party.
Why it works:
- Asymmetric emotion. Fear sells off faster than relief rallies—providing a fat “discount window”.
- Thin session timing. Announcements love weekends/holidays when liquidity is shallow; reversals hit when desks are lightly staffed.
- Narrative-hungry algos. Headline-scrapers chase both legs, exaggerating the swing.
4. How to build a TACO-tracker process
| Step | What to monitor | Tools & tips |
|---|---|---|
| 1. Sizzle alert | Real-time headline scanners for keywords: “tariff”, “50 %”, “EU goods”, “deadline moved” | RSS from Reuters Speed, ForexLive, ING, Saxo; set audible alerts at unsocial hours. |
| 2. Pre-heat levels | Key “panic proxies” – SXXP futures (FXXP), EUR/USD, V2TX | Plot 30-day range; mark where Friday closes sit relative to one-month lows. |
| 3. Smell-test | Does price action overshoot the fundamental? (e.g., a 1 % tariff headline triggering a 3 % index drop) | Keep a cheat-sheet of tariff effective dates vs. sector exposure to gauge actual EPS hit. |
| 4. First bite | Scale-in buy orders 30–50 bps below Friday close (for indices) or at 1-sigma intraday ATR on FX | Use conditional orders so you’re filled even if headline hits at 03:00 CEST. |
| 5. Double-dip | If confirmation tweet/press briefing appears, add ½ size | Require volume confirmation >150 % of 20-day average to avoid “false flip”. |
| 6. Layered exits | ⅓ off at mean-reversion (Friday close), ⅓ at +0.5 %, trail stop on last ⅓ | Keeps upside in case tariff is scrapped entirely. |
| 7. Salsa control (risk) | Max notional <1 % NAV; hard stop if new headline raises the tariff | Prevents getting burnt if the chicken decides not to bail. |
5. Serving suggestions & side dishes
- Optional guac: Pair the long-equity leg with a short USD basket (DXY micro-futures) for added zing when risk turns.
- Refried hedges: If liquidity is lousy, use deep-out-of-the-money STOXX 600 weeklies—cheap gamma for mean-reversion.
- Digestive aid: Push your broker API logs into a notebook to score each TACO attempt; refine entry/exit bands quarterly.
6. Final bite
The TACO trade isn’t about predicting what Trump tweets; it’s about betting he’ll flip the tortilla before it burns. With a disciplined two-source price check and a pre-cooked playbook, you can feast on the panic and still keep your fingers un-singed. ¡Buen provecho!