US Dollar on the Ropes. Fear and Uncertainty Rule the Market
The Euro Flexes Its Muscles, Gains 500 Pips on US Dollar. Pullback Next?
President Trump’s new tariffs for Mexico and Canada are creating chaos for the US Dollar, driving it to new lows against most of its main counterparts. The US Dollar Index (DXY), which measures USD performance against a basket of 6 major currencies, dropped last week from 107.60 to 103.50. The new tariffs will come into effect starting April 2nd; the initial date was March 4.
The U.S. Non-Farm Payrolls report showed that 151K new jobs were added, slightly lower than the expected 159K. Following the release of the report, expectations increased for a rate cut in June. At the time of writing, there is only a 13.8% chance that the Fed will keep the rate unchanged at the June meeting, according to the CME FedWatch tool.
In other news, the European Central Bank (ECB) trimmed the rate from 2.90% to 2.65% last week. The move was largely anticipated and did not create a lot of buzz; however, the chance of a pause in April has increased.
Economic Calendar Highlights
Inflation data will take center stage this week with the release of the U.S. Consumer Price Index (CPI) scheduled for Wednesday at 12:30 pm GMT. The monthly Core CPI is expected to drop from 0.4% to 0.3% and the yearly figure is expected to decrease from 3.0% to 2.9%, inching closer to the Fed’s 2.0% target.
The Producer Price Index (PPI) will be released Thursday at 12:30 pm GMT, showing the changes in the price that producers charge for their goods and services. Although it is not a direct gauge of inflation, the PPI has inflationary implications because a higher price charged by producers will be eventually passed on to the consumer.
The final releases of the week are set for Friday at 2:00 pm GMT in the form of the U.S. Consumer Sentiment and Inflation Expectations surveys. The impact on the Forex market is medium, with stronger volatility created if the actual numbers differ a lot from the forecast.
Technical Outlook – EUR/USD
Last week the Euro gained more than 500 pips on the US Dollar and finished it at 1.0830 after a near-touch of 1.0900 resistance. This price action was due to the uncertainty that stemmed from the Trump tariffs but it was also rooted in technical reasons.
Once the downtrend showed signs of exhaustion (multiple higher lows) and the triple top was broken, this was a sign for the bulls to go “all in” and the result was the huge breakout we saw last week. We may see another attempt to move above the resistance at 1.0900 but the current rally may also turn into a sideways movement based on profit-taking and overbought conditions.
The levels to watch are 1.0900 as resistance and 1.0775 as support. We may see pullbacks below support but a move above resistance may have limited potential before a deeper retracement occurs.
