- Earlier attempts at a recovery appear to have evaporated ahead of US cash trading in the US dollar.
- Traders are considering upcoming comments and announcements from President Trump.
- The US Dollar Index (DXY) is trading just above 108.00 and could slide into losses if more selling pressure arises.
The US Dollar Index (DXY), which tracks the greenback’s value against six major currencies, is seeing earlier efforts to recover from its poor performance on Monday, which was wiped out ahead of President Donald Trump’s latest comments. , who are ready to make an announcement. Infrastructure. The US dollar strengthened on Monday with the index falling more than 1% after it was revealed that the tariffs were not part of the executive orders signed by Donald Trump in his first hours as US President. The market was wrong in thinking that the stance on tariffs had eased and would face widespread delays.
However, a surprise comment by US President Trump late on Monday night caused a reversal in all major pairs including the US dollar. President Trump said the application of a 25% tariff on imports from Canada (CAD) and Mexico (MXN) would take place in early February, with the immediate response being the devaluation of the Canadian dollar (CAD) and the Mexican peso (MXN). Overall, Monday’s losses are leading to reversals on Tuesday on almost all fronts and asset classes impacted by those comments.
Daily Digest Market Movers: Bumpy road ahead
- The US Treasury will publish some data this Tuesday in an otherwise very empty economic calendar. At 16:30 GMT, 3-month, 6-month and 52-week bills will be allocated to the markets.
- The stock markets are on the rise on Tuesday. European shares are flat, while US futures are up near 0.50%.
- The CME FedWatch tool projects a 54.2% chance that interest rates will remain unchanged at current levels at the May meeting, suggesting a rate cut in June. Expectations are that the Federal Reserve (Fed) will remain reliant on data with uncertainties that could impact inflation during US President Donald Trump’s tenure.
- US 10-year yields are trading around 4.57% and have a long road to recovery if they want to get back to last week’s levels near 4.75%.
US Dollar Index Technical Analysis: Recovery pressure continues
The US Dollar Index (DXY) fell into the hands of the bears on Monday, before the bulls took over again on Tuesday. However, traders need to be mindful of some potholes in the road ahead if the DXY moves back to 109.00 and above. With the recovery underway on Tuesday, some key upside levels could cause heavy rejection, resulting in a dead-cat-bounce, trapping US dollar bulls and squeezing them towards 107.00 and below.
If this correction wants to continue its uptrend, the important level to take control is 109.29 (July 14, 2022, higher and rising trend line). Before moving forward, the next major upside level will be at 110.79 (September 7, 2022, high). Once moving forward from there, it reached 113.91, which is double from October 2022.
On the downside, the first area to watch is 107.85-107.90, which marked Monday’s improvement. And on the downside, the convergence of the October 3, 2023 high and the 55-day simple moving average (SMA) around 107.35 should act as a double safety feature to catch any falling knives.
US Dollar Index: Daily Chart
Inflation FAQs
Inflation measures the increase in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation does not include more volatile elements such as food and fuel which can fluctuate due to geopolitical and seasonal factors. Core inflation is the figure that economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures changes in the prices of a range of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks because it does not include volatile food and fuel inputs. Interest rates generally go higher when the core CPI rises above 2% and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The reverse is the case when inflation falls.
Although it may seem counterintuitive, high inflation in a country increases the value of its currency and vice versa for low inflation. This is because the central bank will typically raise interest rates to tackle high inflation, which will attract more global capital inflows from investors looking for an attractive place to park their money.
In the past, investors turned to gold in times of high inflation because it retained its value, and while investors often bought gold for a safe-haven during times of extreme market turmoil, this is not the case most of the time. Is. , This is because when inflation is high, central banks will raise interest rates to combat it. Higher interest rates are negative for gold because they increase the opportunity cost of holding gold or keeping money in a cash deposit account compared to an interest-bearing asset. On the other hand, low inflation is positive for gold as it brings down interest rates, making the shiny metal a more viable investment option.
