- The US Dollar consolidates Thursday’s losses.
- Question grows in markets what President Donald Trump still can issue next on tariffs.
- The US Dollar Index (DXY) drops substantially below 108.00 and hovers around 107.00.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is orbiting around 107.00 at the time of writing, consolidating Thursday’s losses. The Greenback came under pressure again after US President Donald Trump signed a memo on Thursday that instructed staff to work on reciprocal tariffs. These tariffs will take weeks or even months before being implemented, which gives time to US trading partners to negotiate and find solutions.
The economic calendar is focusing on US Retail Sales this Friday. Although US data tends to be market-moving, it seems markets are rather ignoring this week’s figures. Next week, investors will focus on the S&P Global Purchase Managers Index (PMI) preliminary data for February due on Friday 21.
Daily digest market movers: US Retail Sales ahead
- At 13:30, nearly all important data for this Friday will be released:
- January Import/Export prices are due, with the monthly Export Price Index expected to rise steadily by 0.3% and the Import Price Index to jump 0.4% compared to 0.1% in December.
- January Retail Sales will be published, with the headline figure expected to shrink by 0.1% compared to 0.4% growth in December. Retail Sales without Cars and Transportation should fall to 0.3% from 0.4% in the previous month.
- Equities are mixed due to all the geopolitical elements moving around. On average, most indices are down or up by less than 0.5%.
- The CME FedWatch tool shows a 57.4% chance that interest rates will remain unchanged at current levels in June. This suggests that the Fed would keep rates unchanged for longer to fight against persistent inflation.
- The US 10-year yield is trading around 4.54%, a deep dive from this week’s high of 4.657%.
US Dollar Index Technical Analysis: No pushback in sight
The US Dollar Index (DXY) is done for this week. A clear weekly loss is unavoidable, and the strong resistance at 107.35 is far away. From here, the DXY is technically handed over to the mercy of the moving averages and the Relative Strength Index (RSI), which is still bearing plenty of room for more downturn. The 200-day Simple Moving Average (SMA), trading around 104.93, might be the one to look out for.
On the upside, that previous support at 107.35 has now turned into a firm resistance. Further up, the 55-day SMA at 107.90 must be regained before reclaiming 108.00.
On the downside, look for 106.52 (April 16, 2024, high), 106.34 (100-day SMA), or even 105.89 (resistance in June 2024) as better support levels. Even though the RSI shows room for more downside, the 200-day SMA at 104.93 could be a possible outcome.
US Dollar Index: Daily Chart
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
