- The US dollar has rebounded from its lows compared to most major markets.
- US President Trump made milder comments that tariffs on China may not be imposed in the end.
- The US Dollar Index (DXY) continues to trade below 108.00 despite a slight rebound from the week’s lows.
The U.S. Dollar Index (DXY), which tracks the U.S. dollar against six different major currencies, is back above 107.50, though it still posted an intraday loss on Friday after U.S. President Donald Trump emerged surprised by comments from a casting call the previous day that raised doubts about to apply tariffs on China. The comments came after Trump’s phone call with Chinese President Xi Jinping. Meanwhile, the Bank of Japan (BoJ) raised interest rates by 25 basis points, resulting in significant losses for the US dollar (USD) against the Japanese yen (JPY).
On the economic data front, Markit has already released flash readings of the German Purchasing Managers’ Index (PMI) for January, with some upbeat data that strengthened the euro (EUR) against the US dollar (USD). Later this Friday, the United States will receive preliminary readings of the S&P Global PMI index for the same month. The University of Michigan will end the day with its final reading of the Consumer Sentiment Index for January.
Daily roundup of market movers: Will and will the U.S. outperform?
- US President Donald Trump published comments on his telephone conversation with Chinese President Xi Jinping. As Bloomberg reported, he surprised the markets by saying that he did not want to impose tariffs on China.
- US President Trump commented on the Federal Reserve and US interest rates, confirming that he will demand an immediate cut in US interest rates, Bloomberg reports.
- In January, Germany’s flash services PMI rose to 52.5, beating estimates of 51.0 and above the previous level of 51.2. Composite PMI managed to emerge from the crisis, reaching 50.1 and beating the expected 48.2 and the previous 48.0.
- At 2:45 p.m. the U.S. will receive the flash PMI reading for January from S&P Global:
- Service prices are expected to fall to 56.5 from 56.8 in the December final reading.
- Production is expected to continue failing at 49.6 from 49.4.
- At 15:00 GMT, the final reading of the University of Michigan’s consumer sentiment index for January is expected to remain stable at 73.2. The 5-year inflation expectation component will also remain unchanged at 3.3%.
- Stocks are mixed, with China and Europe in positive territory as markets reduce the risk of Trump’s tariffs. However, U.S. stocks look sluggish and are trading flat.
- CME’s FedWatch tool projects a 52.2% chance that interest rates will remain unchanged at the May meeting, suggesting a rate cut in June. The Federal Reserve (Fed) is expected to remain data-dependent and uncertainties could impact inflation under US President Donald Trump.
- The U.S. 10-year Treasury yield is around 4.654%, down from a faint showing earlier in the week of 4.528%, and is still a long way from returning to last week’s over-a-year high of 4.807%.
US Dollar Index Technical Analysis: Is It Underperforming?
The US Dollar Index (DXY) is taking some hits and moving lower, hand in hand with US yields. While US President Trump may suddenly soften his stance on tariffs, it is still early in his term to rule out the imposition of any tariffs on China and other countries. Tail risks are forming and markets are starting to downplay the actual position, which could still mean a rise in the US dollar if Trump imposes tariffs on China.
DXY has some work to do to return to the levels seen earlier this week. First, you need to regain the high psychological level of 108.00. Then, 109.29 (July 14, 2022, high and rising trend line) will be the next to recoup the losses incurred this week. Further up, the next upside level to be reached before continuing higher remains at 110.79 (September 7, 2022 high).
On the other hand, the convergence of the October 3, 2023 high and the 55-day uncomplicated moving average (SMA) around 107.50 should act as a double hedge to support the DXY price. For now, it looks like this trend will continue, although the Relative Strength Index (RSI) still leaves some room for deterioration. Therefore, rather look for 106.52 or even 105.89 as better levels for dollar bulls to engage and trigger a reversal.
US Dollar Index: Daily Chart
