- The US dollar is recovering after experiencing a dip earlier, buoyed by market hesitance and escalating trade tensions.
- President Trump has threatened the European Union and Mexico with 30% tariffs as part of his ongoing trade pressure efforts.
- The DXY, or US dollar index, is showing strength, though it faces challenges in breaking past critical resistance levels around 97.80-98.00.
The US dollar (USD) kicked off the week on a positive note, maintaining gains from the previous week as traders reacted to the renewed trade tensions. During the US trading session, the greenback rose, following Trump’s warnings of “very strict” tariffs on Russia unless a peace deal is made within 50 days. He also hinted at additional tariffs on countries importing oil from Russia, further stirring geopolitical worries.
The US Dollar Index (DXY), which evaluates the dollar against a set of six major currencies, is trading close to a two-week peak. As of now, the index hovers just over the 98.00 mark, around 98.10 during American trading hours.
While last week’s upward momentum appears stable, the DXY is yet to overcome significant resistance levels. Investors are now keenly awaiting the June Consumer Price Index (CPI) data, set to be released Tuesday.
Geopolitical anxiety has escalated since the US and NATO announced major military aid for Ukraine. During a White House press briefing alongside NATO’s Executive Director, Trump confirmed that European allies would be purchasing billions in American weaponry, including patriot missile systems, which are slated for delivery to Ukraine soon. This initiative aims to fortify Ukraine’s air defense amid increasing Russian assaults, funded by key NATO partners like Germany, the UK, Sweden, and Canada.
Over the weekend, Trump reignited trade tensions by sending warning letters to both the EU and Mexico, threatening new tariffs effective August 1.
In a letter to EU Commission President Ursula von der Leyen, Trump conveyed that the US would impose 30% tariffs on all EU goods unless full market access is granted. He also criticized the EU for its “long-term, large, sustained trade deficits,” expressing dissatisfaction with their trade practices.
In a separate correspondence with Mexican President Claudia Sheinbaum, Trump connected tariff threats to fentanyl trafficking, asserting that Mexico hasn’t done enough to curb cartel activities. He claimed, “Mexico has yet to stop a cartel trying to turn everything in North America into a trafficking playground.” A similar 30% tariff on Mexican imports is due next month unless more decisive action is taken.
While both letters suggested a confrontational stance, Trump indicated that there may be room for adjustments in tariffs based on each country’s relationship with the US.
Market Mover: Tariff tensions escalate amid scrutiny on Powell
- Geopolitical anxiety surged following the US and NATO’s announcement of significant military assistance for Ukraine, amplifying risks in global markets. Trump, speaking at the White House with NATO’s Executive Director, confirmed that European allies would be investing billions in American weaponry, including systems intended for Ukraine. This plan is designed to enhance Ukraine’s air defenses as Russian assaults increase, supported by major NATO allies like Germany and the UK.
- Trump’s latest tariff threats to the EU and Mexico follow similar warnings issued to over 20 other countries last week. Countries including Canada, Japan, and South Korea have been alerted about potential new import tariffs ranging from 25% to 50%, unless a new bilateral trade agreement is negotiated by August 1. Though immediate reactions are being gauged, these threats raise concerns regarding potential supply chain disruptions and retaliatory actions.
- The EU reacted negatively to the proposed tariffs, with President Ursula von der Leyen calling the 30% imposition detrimental to transatlantic trade. She expressed disappointment but affirmed the EU’s commitment to dialogue and stability, announcing a postponement of retaliatory tariffs originally set to take effect in hopes of a negotiated resolution by August 1. Still, she warned that if the EU’s concerns are not addressed, proportionate measures would be considered.
- As trade tensions escalate, the EU is actively working to solidify alliances with other major economies. EU Trade Commissioner Maloszhuchovich stated that discussions with G7 partners like Canada and Japan are ongoing to formulate joint responses to the US tariff threats.
- Mexico has firmly pushed back against the latest tariff threats, with President Sheinbaum labeling them unfair and counterproductive. She defended Mexico’s actions against fentanyl trafficking and highlighted improved security collaboration with the US. While asserting the importance of diplomatic resolution, Mexico clarified that the impending tariffs would apply only to those goods not covered by the US-Mexico-Canada Agreement (USMCA).
- Tensions between the White House and the Federal Reserve have spurred criticism toward Fed Chair Jerome Powell regarding budget increases for the central bank’s headquarters renovations. The projected costs surged from $1.9 billion to nearly $2.5 billion, raising alarm among White House advisors. Senior economic aide Kevin Hassett voiced concerns about financial governance and hinted at exploring whether the President could legally remove Powell, intensifying worries about the Fed’s independence.
- Everyone’s attention is on the upcoming June Consumer Price Index (CPI) report, due Tuesday. Expectations are for both headline and core inflation to rise by about 0.3% month-over-month. This could signal a resurgence of price pressures. Given the backdrop of growing trade tensions, investors are keen to see if inflation indeed elevates again, as the outcomes could heavily influence the Fed’s future actions, particularly if rate cuts remain a possibility. Higher-than-anticipated readings would bolster the dollar, whereas softer figures might pose challenges.
Technical Analysis: DXY Eyes Breakouts Over Key Resistance
The US Dollar Index (DXY) is currently just above the 98.00 level, having made a modest recovery from multi-year lows.
After reaching a low of 96.38 on June 1, the index hit its lowest point in over three years, but the downturn failed to generate sustained selling pressure, and the DXY has been gradually rising since.
At present, the index is positioned just above the 21-day exponential moving average (EMA), testing a blend of resistance levels around 97.80-98.00.
Momentum Indicator: There’s moderate conviction here—it seems to be showing early signs of recovery. The relative strength index (RSI) has edged toward the neutral 50 line, which suggests an improved, though still somewhat uncertain, market sentiment.
The moving average convergence divergence (MACD) on the daily chart indicates ongoing bullish momentum improvement. The MACD line (blue) has crossed above the signal line (orange), suggesting early upward momentum gathering. Additionally, the histogram bars are positively skewed, affirming a shift towards bullish short-term trends. However, MACD remains below the zero line, indicating that recent gains may still be part of a larger downtrend correction.
A daily close above the wedge and the psychological barrier of 98.00 could indicate a potential breakout, paving the way towards the 98.50-99.00 range.
Meanwhile, 97.50 acts as immediate support, and any decline below this level may attract sellers, exposing lower wedge boundaries around 96.38, marking a potential key downside target.
