The US dollar (USD) is trading lower due to a sharp decline in UST yields and weaker US economic data, with the DXY at 106.27. Key statistics from ISM manufacturing, new orders, and employment have shown disappointing results.
Starting today, new tariffs introduced by the US on Canada, Mexico, and China may escalate trade tensions. China is reportedly preparing countermeasures, including tariffs on US agricultural products.
### Expected Retaliatory Measures
Retaliatory tariffs are expected from Canada and Mexico. This situation could increase the demand for safe haven currencies like USTs and JPY while high-beta currencies are under pressure.
Current technical indicators suggest a potential consolidation, with support levels at 106.35 and 106.10, and resistance between 107.30 and 108.50.
The weakening of the US dollar comes as a result of Treasury yields falling alongside economic data that has fallen short of expectations. The DXY index, positioned at 106.27, reflects these pressures. Manufacturing activity, new orders, and employment figures have all missed forecasts, pointing to possible slowing economic momentum.
From today, newly imposed tariffs on imports from Canada, Mexico, and China could introduce fresh friction into trade relations. Reports indicate that Beijing is preparing to strike back, potentially introducing duties on agricultural imports from the United States. Ottawa and Mexico City are also likely to respond, which could lead to a broader shift in market sentiment.
### Market Reactions And Technical Outlook
In times of market uncertainty, investors tend to pivot towards safer assets, and we may see increased interest in government bonds and the Japanese yen as a result. On the other hand, risk-sensitive currencies are likely to struggle. This shift comes as traders weigh the broader economic impact of renewed trade disputes.
Looking at technicals, there is evidence that price action may stabilise in the near term, with notable support around 106.35 and 106.10. Resistance sits in a wider band between 107.30 and 108.50, meaning any break in either direction could set momentum for the next move. For traders navigating derivatives markets, price behaviour around these levels may provide valuable insights into sentiment.
