21 Jan 2025

Numerous investors secure their profits amid ongoing trade tensions and a temporary halt in bond markets due to the holiday. Initial indications from the forthcoming US administration point towards a systematic strategy regarding tariffs and fiscal expansion. Attention remains on the data-driven decisions of the Federal Reserve, with May anticipated as a crucial month for potential policy changes.

The US Dollar is in choppy trading after President-elect Donald Trump’s inauguration. Trading floors in the US will remain closed due to Martin Luther King, Jr. Day, but the US Dollar Index (DXY) plunged toward 108.30 with uncertainty ahead as markets await further details on Trump’s economic plans.

Daily digest market movers: USD sees red on delayed tariff signals

Policy modifications are contingent upon discussions in Washington: As reported by various sources, the new administration is set to form a task force to assess the potential effects of tariffs on Canada, Mexico, and China prior to the implementation of any extensive measures. Notably, during his inaugural address, Donald Trump hinted at the possibility of a tariff strategy concerning these nations, albeit without providing specific details. 

The holiday closure has resulted in a slowdown of market activity, with the US bond market being closed. The yield on the 10-year bond remains close to 4.60%. Traders will be attentive on Tuesday for new indicators related to inflation concerns and potential interest rate adjustments. The CME FedWatch Tool suggests that a pause is anticipated for this month's Federal Reserve meeting, with a strong likelihood of another pause in May.

DXY technical outlook: 20-day SMA cracks, downside risk builds

The US Dollar Index experienced a significant decline, falling below the critical level of 109.00 due to profit-taking activities and subdued bond yields. The breach of the 20-day Simple Moving Average (SMA) around 108.50 highlights an increasing vulnerability for the US Dollar.

If buying interest does not materialize, the broader upward trend of the DXY may encounter a more substantial decline. However, the anticipation of sustained economic strength in the United States could eventually draw in new buyers, prompting markets to remain vigilant for any potential policy-driven changes.