- The US Dollar remains flat on Wednesday following two consecutive days of losses.
- Markets are assessing the impact of President Trump’s announcement on a 10% tariff on Chinese goods made on Tuesday.
- The US Dollar Index (DXY) is testing the 108.00 level, with a potential move toward the lower 107.00 range.
The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, remains range-bound below the 108.00 level during Wednesday’s European trading session. Selling pressure lingers after US President Donald Trump’s comments on a potential 10% tariff on all Chinese imports made on Tuesday, with Europe also being drawn into tariff discussions, though debates are ongoing.
Meanwhile, the US economic calendar is light, as Federal Reserve officials are in a blackout period ahead of the January 29 policy meeting. Traders are focusing on the Mortgage Bankers Association (MBA) Applications for the week ending January 17, following a remarkable 33.3% surge the previous week. Market participants are curious to see if Trump’s policies are influencing the mortgage market.
Daily Market Movers: The Next Step
- The Mortgage Bankers Association released its weekly mortgage survey on Wednesday, showing a modest 0.1% increase in applications for the week ending January 17, a significant slowdown from the previous week’s 33.3% jump.
- Equities are posting gains on Wednesday, with European markets broadly in the green and US futures up by approximately 0.50%.
- The CME FedWatch tool indicates a 55.7% chance that the Federal Reserve will keep interest rates unchanged at the May meeting, with a rate cut expected in June. The Fed is expected to remain data-dependent, considering uncertainties that could affect inflation under US President Donald Trump’s administration.
- The US 10-year yield is trading around 4.56% on Wednesday, facing a long road to recover to last week’s peak near 4.75%.
US Dollar Index Technical Analysis: What Happens When Economic Data Shifts?
The US Dollar Index (DXY) continues to decline as selling pressure persists, though the correction is not primarily driven by tariffs. Rather, the uncertainty and vague communication surrounding the economic outlook have left many issues unresolved.
For a sustained recovery in the DXY, the critical level to reclaim is 109.29, which aligns with the July 14, 2022, high and an ascending trendline. Beyond that, the next key resistance lies at 110.79, the September 7, 2022, high. A breakthrough there could pave the way for a more challenging climb toward 113.91, the double top formed in October 2022.
On the downside, the first support to monitor is the 107.80-107.90 range, which has held during this week’s correction. If the price dips further, the confluence of the October 3, 2023, high and the 55-day Simple Moving Average (SMA) around 107.40 should provide additional support to prevent further losses.
