Market Data 
- The US Dollar Index edges lower, testing a fresh low for this week.
- Traders are starting to get nervous on the duration before an initial trade deal can be announced.
- The US Dollar Index remains capped below 100.00, still stuck in a wait-and-see range.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is sliding lower on Tuesday with market nervousness picking up again. Market participants are assessing the recent sharp move in the Taiwan Dollar (TWD), which appreciated by more than 5% against the Greenback on Monday before retreating somewhat on Tuesday. Markets are trying to assess if a spillover effect could occur, affecting bigger Asian currencies such as the South Korean Won (KRW), the Japanese Yen (JPY) or the Chinese Renminbi (CNH).
Meanwhile, on the geopolitical front, a swarm of headlines are making its way to the markets, with the most recent the upcoming German Chancellor Friedrich Merz falling short of a majority in the German parliament vote to become the new Chancellor. On the other side of the Atlantic, US Commerce Secretary Howard Lutnick jacked up stakes for the Trump administration to deliver an initial trade deal soon by saying that the first deal needs to be with a “top ten” economy, he said on Fox News. In Europe, the war between Russia and Ukraine is heating up with drone attacks on both sides, while Israel is further preparing a ground offensive with the goal of fully controlling the Gaza Strip.
Daily digest market movers: Deficit widens further
- Mayhem in German Parliament, the Bundestag, this Tuesday where a formal vote to swear in new Chancellor Friedrich Merz was set on the agenda. Though, Merz failed to secure enough votes and apparently already lost trust in his own majority coalition before even becoming Chancellor. A lot of questions arise now in this never-before-seen political impasse. A second vote could take place later this, or either a new Chancellor can be chosen while even new snap elections could be under consideration.
- Newly elected Canadian Prime Minister Mark Carney is on his way to the White House to meet with US President Donald Trump to discuss a possible trade deal.
- The US Goods and Services Trade Balance for March fell to a wider-than-expected deficit of 140.5 billion against the expected $129 billion, with the previous reading being a $122.7 billion deficit in February.
- Equities dropped lower across the board on the back of the German political news. The German Dax slips 0.5%. US futures are all down as well with the Nasdaq leading the decline, down by 1%.
- The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in May’s meeting stands at 3.2% against a 96.8% probability of no change. The June meeting sees a 31.8% chance of a rate cut.
- The US 10-year yields trade around 4.33%, erasing past weeks’ softening as traders have even priced out the chances for a June rate cut further, with even July starting to look doubtful.
US Dollar Index Technical Analysis: Steady while looking for direction
The US Dollar Index (DXY) is facing some headwinds after US Commerce Secretary Lutnick ramped up pressure from within the Trump administration to get an initial trade deal done. Lutnick added that the initial deal should be with a top ten economy, in order to set an example. Despite several claims from US President Donald Trump and several cabinet members that deals are imminent, no real signed trade deals have been announced.
On the upside, the DXY’s first resistance comes in at 100.22, which supported the DXY back in September 2024, with a break back above the 100.00 round level as a bullish signal. A firm recovery would be a return to 101.90, which acted as a pivotal level throughout December 2023 and again as a base for the inverted head-and-shoulders (H&S) formation during the summer of 2024.
On the other hand, the 97.73 support could quickly be tested on any substantial bearish headline. Further below, a relatively thin technical support comes in at 96.94 before looking at the lower levels of this new price range. These would be at 95.25 and 94.56, meaning fresh lows not seen since 2022.
US Dollar Index: Daily Chart
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
