- Investors bypass the US Dollar on Monday as safe-haven inflows rise amid concerns over AI valuations.
- US President Trump threatened to impose a 50% tariff on Colombian imports amid a deportation dispute.
- The US Dollar Index (DXY) drops to 107.00, approaching a potential breakdown.
The US Dollar Index (DXY), which tracks the US Dollar against six major currencies, edges lower and trades around 107.15 on Monday, despite earlier safe-haven inflows during the Asian session. Markets were rattled after US President Donald Trump threatened to impose 50% tariffs on
On the economic front, all eyes are on the upcoming monetary policy decisions from the US Federal Reserve (Fed) and the European Central Bank (ECB) this week, scheduled for Wednesday and Thursday, respectively. While the ECB is expected to implement a 25 basis point rate cut, the Fed is anticipated to keep borrowing costs unchanged. For Monday, the Chicago Fed National Activity Index for December remains the key data point.
US equities are dipping, as concerns grow over the valuation of AI tech stocks. A Chinese startup, Deepseek, launched an open-source AI module that could challenge industry leaders like Nvidia and ASML. Tech stocks took a hit on Monday, with Nvidia falling 13%, wiping out half a trillion USD in market value, dragging the Nasdaq lower.
Daily Digest: Market Movers and Economic Data
- The Chicago Fed National Activity Index for December rose to 0.15, up from a previous reading of -0.12, which has been revised to -0.01.
- At 15:00 GMT, December New Home Sales data is expected to show a slight increase, with sales projected to rise to 0.67 million units from 0.664 million in November.
- The US Treasury faces a busy day with two key auctions scheduled:
- At 16:30 GMT, short-term 3-month and 6-month bills will be allocated.
- At 18:00 GMT, medium-term 2-year and 5-year notes are due for auction.
- Equities are off their lows, although the Nasdaq remains down by 2.87%, following a 4% drop earlier.
- According to the CME FedWatch tool, there’s a 43.8% chance that the Federal Reserve will leave interest rates unchanged in May, indicating expectations for a potential rate cut. Market expectations suggest the Fed will remain data-dependent amid uncertainties that could influence inflation during US President Donald Trump’s term.
- The US 10-year yield is trading around 4.546%, retreating further from the more-than-one-year high of 4.807% earlier this month.
US Dollar Index Technical Analysis: Challenging Road Ahead
The US Dollar Index (DXY) is under pressure this Monday as investors flock to US bonds and the Japanese Yen (JPY), the latter of which is rallying over 1% against the US Dollar, impacting the DXY due to JPY’s 13.6% weight in the index. Volatility is expected to increase in the DXY ahead of Wednesday’s Federal Reserve decision.
Recovery for the DXY will be a long process. First, it must reclaim the psychological level of 108.00. Beyond that, the next key resistance is at 109.29, which corresponds to the July 14, 2022 high and an ascending trendline. Further resistance is found at 110.79, the high from September 7, 2022, before the DXY can advance further.
On the downside, the October 3, 2023 high and the 55-day Simple Moving Average (SMA) around 107.56 provide significant support, acting as a dual safety level for the DXY. While this level appears to be holding for now, the Relative Strength Index (RSI) suggests there is still room for downside movement. As a result, key levels to watch for potential support are 106.52 or even 105.89, which could offer better entry points for US Dollar bulls looking to trigger a reversal.
