The US Dollar experienced a decline on Tuesday, following negative sentiment from Monday amidst tariff announcements by the US. The US Dollar Index (DXY) fell below 106.00 as President Trump confirmed the implementation of tariffs on Canada, Mexico, and China.
In response, Canada announced retaliatory tariffs on US goods starting with a 25% levy on $30 billion worth of imports. China also stated it would impose 15% tariffs on key US agricultural products, effective March 10.
Us Economic Data Trends
Recent US economic data indicates potential slow to negative growth, with the TechnoMetrica Institute reporting the Economic Optimism Index fell to 49.8, below the estimated 53.1.
Federal Reserve officials are scheduled to speak on current economic conditions, while equities show a trend towards safe havens like Gold. The CME Fedwatch Tool indicates a 14.4% chance of interest rates remaining unchanged in June, as the US 10-year yield hovers around 4.11%.
Should the DXY support at 106.00 fail, potential levels to watch include 105.89 and 105.05. Resistance is identified at the 100-day Simple Moving Average (SMA) at 106.87, with further upside at 107.35 and 108.00.
This week’s decline in the US Dollar came after hostile trading sentiment on Monday, underscored by tariff announcements affecting key trade relationships. With Washington affirming these measures against three major economies, it was unsurprising to see a reactionary slump in the Dollar Index below 106.00. The response from Ottawa and Beijing only reinforced the challenging environment for international trade, with both governments rolling out their plans for countermeasures.
The most immediate retaliation came from Canada, which opted for a 25% duty on $30 billion of US imports. Meanwhile, China targeted American agricultural exports, applying a 15% tariff due to take effect from 10th March. This move from Beijing will weigh heavily on sectors reliant on cross-border trade, something that market participants should follow closely.
The latest batch of US economic data continues to paint a picture of reduced momentum, with the Economic Optimism Index sliding below expectations to 49.8. With forecasts placed at 53.1, the underperformance adds to fears that the world’s largest economy may continue decelerating.
Federal Reserve officials are now set to present their perspectives on current financial conditions, which could be instrumental in shaping near-term expectations. Meanwhile, capital flows indicate a shift towards safer assets, with gold absorbing increased demand. Bond markets tell a similar story, with the 10-year Treasury yield stabilising near 4.11%. However, rate expectations remain uncertain, with the CME FedWatch Tool indicating only a 14.4% likelihood of holding rates steady in June.
Key Technical Levels
Technically, Dollar Index traders should note the 106.00 level as the nearest support. Any break lower could lead to tests at 105.89, possibly extending further towards 105.05. On the other hand, upside resistance is located near the 100-day Simple Moving Average at 106.87, with additional hurdles at 107.35 and 108.00.
As the trading week unfolds, we will be monitoring how market sentiment shifts in response to further developments, particularly any statements from policymakers that could influence positioning in the derivatives space.
