- The US dollar is seeing the previous recovery attempt erased before US cash trading.
- Traders are studying upcoming comments and announcements from President Trump.
- The US Dollar Index (DXY) is trading just above 108.00 and could turn to losses if more selling pressure emerges.
The US Dollar Index (DXY), which measures the value of the greenback against six major currencies, is seeing earlier attempts to recover from its poor performance on Monday, being erased ahead of new comments from President Donald Trump, who is set to make an announcement on Monday. Infrastructure. The US dollar received a strong correction on Monday with a loss of more than 1% in the index, when it emerged that the tariffs were not part of the executive orders signed by Donald Trump in his first hours as President of the United States. Markets were mistaken in believing that the situation on tariffs had eased and would face a widespread delay.
However, a surprise comment from US President Trump late Monday night triggered a turnaround with reversals in all major pairs, including the US dollar. President Trump said 25% tariffs on imports from Canada (CAD) and Mexico (MXN) are scheduled to begin at the beginning of February, with devaluations of the Canadian dollar (CAD) and Mexican peso (MXN) as an immediate response. Overall, Tuesday’s reversals speak to Monday’s losses on almost all fronts and asset classes affected by those comments.
Daily Summary of Market Movers: Bumpy road ahead
- The US Treasury will release some data this Tuesday in a very empty economic calendar. At 16:30 GMT, 3-month, 6-month and 52-week bills will be allocated to the markets.
- Stocks pare gains on Tuesday. European stocks were flat, while US futures rose near 0.50%.
- The CME FedWatch tool forecasts a 54.2% chance that interest rates will remain unchanged at current levels at the May meeting, suggesting a rate cut in June. Expectations indicate that the Federal Reserve (Federal Reserve) will remain data-reliant with uncertainty that may impact inflation during US President Donald Trump’s term.
- The US 10-year bond yield is trading at around 4.57% and has a long way to recover if it wants to return to last week’s levels near 4.75%.
US Dollar Index Technical Analysis: Recovery pressure is underway
The US Dollar Index (DXY) fell into the hands of bears on Monday, with bulls in control again on Tuesday. However, traders should be aware of some bumps in the road ahead if the DXY returns to 109.00 or higher. With the ongoing rebound on Tuesday, some pivotal upside levels could cause extreme rejection, triggering a dead bounce, trapping USD bulls and pressuring them towards 107.00 and lower.
If this recovery wants to continue its rise, the pivotal level to control is 109.29 (July 14, 2022, high and rising trend line). Furthermore, the next big upside to reach before advancing further remains at 110.79 (September 7, 2022 high). Once above that level, it extends all the way to 113.91, a double top as of October 2022.
On the downside, the first zone to watch is 107.85-107.90, which maintained Monday’s correction. In the event of further decline, the convergence between the October 3, 2023 high and the 55-day SMA around 107.35 should serve as a double safety feature to catch any falling knife.
US Dollar Index: daily chart
Frequently asked questions about inflation
Inflation measures the rise in the prices of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a monthly (MoM) and yearly (YoY) basis. Core inflation excludes more volatile items such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. Core inflation is the number that economists focus on and is the level targeted by central banks, which are tasked with keeping inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a monthly (MoM) and yearly (YoY) basis. The core CPI is the number targeted by central banks because it excludes volatile food and fuel inputs. When the core CPI rises above 2%, it typically causes interest rates to rise and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually leads to a stronger currency. The opposite is true when inflation falls.
Although it may seem counterintuitive, high inflation in a country causes the value of its currency to rise and vice versa for lower inflation. This is because the central bank will typically raise interest rates to combat rising inflation, which attracts more global capital flows from investors looking for a profitable place to park their money.
Previously, gold was the asset investors turned to during times of high inflation because it maintained its value, and while investors often continue to buy gold for its safety properties in times of extreme market turmoil, this is not the case most of the time. . This is because when inflation is high, central banks will raise interest rates to combat it. High interest rates are negative for gold because they increase the opportunity cost of holding gold versus interest-bearing assets or putting money in a cash deposit account. On the flip side, lower inflation tends to be positive for gold because it lowers interest rates, making the shiny metal a more viable investment alternative.