The US Dollar displayed signs of stabilization on Wednesday following a two-day decline, as traders assessed the implications of President Trump’s recent announcement regarding a potential 10% tariff on Chinese imports. The US Dollar Index (DXY), which measures the currency’s strength against a basket of six key currencies, hovered just below the 108.00 level, with some analysts predicting a retreat to around the lower end of the 107.00 range.
In European trading, the DXY remained under pressure amid ongoing trade discussions that seem to have broadened beyond just China to include Europe as well. Despite the lack of significant economic data in the US, market participants were attentive to the Mortgage Bankers Association (MBA) Applications report. The previous week had seen a dramatic 33.3% surge in mortgage applications, prompting speculation about the impact of Trump’s policies on the housing market.
On that note, the MBA’s latest survey indicated a marginal 0.1% increase in applications for the week ending January 17, a stark contrast to the robust growth seen in the prior week. This would suggest that the initial impact of recent economic developments is beginning to fade.
In the equity markets, European stocks showed little movement while US futures were up nearly 0.50%. Mixed signals regarding interest rates lingered, with a CME tool highlighting a 55.7% probability that rates would remain stable in May, although a cut in June is also being considered due to ongoing economic uncertainties.
Meanwhile, the yield on the US 10-year note was around 4.58%, with analysts noting a significant challenge ahead if it wishes to reclaim last week’s peak of approximately 4.75%.
Regarding technical indicators for the DXY, while the index experienced a decline, the factors driving these fluctuations are attributed less to tariffs and more to the ambiguity in communication from policymakers. A further ascension for the DXY would require surpassing the pivotal resistance level of 109.29, while support levels to monitor include the 107.80 – 107.90 range, with further protection near the 107.40 level offered by moving averages.
