USD Index (DXY): Dollar Recovers as Tariffs Take Center Stage

The recent comments from President Trump regarding possible tariffs on Canada and Mexico have created noticeable market volatility. As of February 1st, concerns about these tariffs have heightened risk aversion among investors, causing the US Dollar Index (DXY) to experience notable price swings.

The uncertainty surrounding tariff proposals has made traders cautious. In yesterday's trading, the DXY fell below a crucial ascending trendline, hinting at potential further declines. The news that the Trump administration might implement tariffs quickly has stirred fears of inflation, which could affect interest rate perspectives and consequently support a stronger US dollar.

Market Reactions to Tariff Proposals

Yesterday marked a day of significant fluctuations in the DXY, spurred on by evolving news from the Trump administration. Initially, there were no concrete tariff plans on Trump's first day, which allowed currencies such as the Euro and the British Pound to gain ground, as traders felt slightly reassured about trade with the EU and the UK.

However, by this morning, President Trump confirmed that tariffs on Canada and Mexico were under consideration. This statement led to increased anxiety, causing prices to swing again, with gold prices rising as investors weighed the risks of escalating trade wars.

It is essential to acknowledge the impact that anticipated tariffs may have on currency strength. The market's perception of tariffs as inflationary has been a crucial factor, as it challenges future rate cut expectations, potentially benefiting the USD in the short run. Analysts are now questioning whether these developments indicate more significant changes ahead in economic policies.

Technical Analysis of the DXY

The DXY's recent dip below key levels suggests that traders should be cautious. An analysis of the daily timeframe shows that the index has broken below an important ascending trendline, indicating potential further declines.

On a four-hour chart, the price is testing the same trendline, which aligns with the 100-day moving average. This zone is a crucial support area, and any rejection here might lead to a pullback. Should the price fall further, immediate support is found at 108.00, with further potential targets at the 200-day moving average around 107.90 and the psychological level of 107.00.

If the DXY reverses and begins to recover, resistance levels to watch are at 108.82, 109.30, and potentially up to the 110.00 mark.

As we navigate this unusually volatile period, upcoming economic indicators like the US S&P Manufacturing and Services PMI data are expected to add further fluctuations in the market. The focus will likely remain on tariff developments and overall US policy direction.

Dollar, Tariffs, Volatility