The US Dollar began a slight recovery on Wednesday, although the Dollar Index (DXY) remains close to its yearly lows around 106.50. This comes as traders react to upcoming tariffs from President Trump and increasing expectations of Federal Reserve rate cuts.

Recent data showed New Home Sales fell to 0.657 million units in January, below the anticipated 0.68 million. The CME FedWatch tool indicates a 66.2% chance of an interest rate cut by June, with US 10-year yields down to approximately 4.31%.

Technically, if the DXY fails to reclaim the 106.52 level, it may decline towards 105.89 or 105.33. Conversely, a recovery above 106.52 could target 106.71 and 107.35 as key resistance levels.

What we are seeing with the US dollar is a modest attempt to recover, but the Dollar Index remains pinned near its lowest levels this year. The recent dip in new home sales suggests that economic momentum might not be as strong as some had hoped. With the market’s eyes on potential Federal Reserve rate adjustments, bets on a cut as early as June continue to build. The US 10-year yield slipping to around 4.31% only adds to this sentiment.

Looking at the numbers, if the index cannot hold above 106.52, declines toward 105.89 and possibly even 105.33 could follow. On the flip side, if it manages to push beyond that threshold, resistance levels at 106.71 and then 107.35 might come into play. Markets will no doubt respond to shifts in interest rate expectations, but they must also take account of trade decisions coming from the White House.

This week’s trading activity will likely reflect these competing forces. If Jerome maintains a steady tone and does not signal immediate cuts, the dollar may find some footing. However, if the probability of a rate reduction continues to climb, longer-term strength could remain under pressure. On the tariff front, Donald’s latest policies may further shake confidence in the greenback, depending on how markets interpret the broader economic impact.

For derivative traders, these levels become particularly important. If they intend to position themselves for further downside movement in the index, watching whether support around 105.89 holds could be key. Should the index breach that level, then 105.33 might be next in sight. However, those banking on a rebound will likely be looking at whether 106.52 can be reclaimed before making any strong moves.

In the coming weeks, it becomes a question of how swiftly expectations of rate cuts shift. Should the likelihood of a June cut increase, the downward pressure on the dollar could intensify. If, however, the data suggests a more resilient economy, some traders may reconsider just how aggressively they price in those moves. The upcoming statements from the Federal Reserve and further US economic data will be worth monitoring carefully.