- The US Dollar is gaining across the board ahead of the US session.
- Traders are seeing early comments out of Riyadh not bearing much positive signs.
- The US Dollar Index (DXY) pops above 107.00 on the back of US-Russian headlines.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is trading above 107.00 at the time of writing on Tuesday after some bleak comments came out on day one of United States (US) and Russia talks on Ukraine. Several US officials have held a meeting with their Russian counterparts this Tuesday in Riyadh, Saudi Arabia, to try and work out a ceasefire or peace deal for Ukraine. First headlines that came out as the meeting ended, are that Russia is not seeing the need for a meeting between US President Donald Trump and Russian President Vladimir Putin this month, due to the number of demands Russia still has.
The economic calendar is again rather calm on Tuesday. The main event that could move markets is the New York Empire State Manufacturing Index data for February. Expectations are that manufacturing sector business activity declined in New York but at a slower pace than in January.
Daily digest market movers: Not the headlines markets were hoping for
- Markets are heading into Gold, US bonds and the Greenback after comments that the US-Russia talks did not go as smooth as hoped for. Russia sticks to its demands and is not looking for a quick solution, rather the long way of negotiations, while it feels that war fatigue at the Ukraine side is creating a positive Russian momentum on the ground. With funding and military equipment quickly being used up, both Europe and US are not really in favor to still write blank cheques for Ukraine to still fight off Russian troops.
- At 13:30 GMT, the New York Empire State Manufacturing Index for February is expected to come in still in contraction but at a slower pace than in January, falling to -1 compared to the previous -12.60.
- At 15:00 GMT, the National Association of Home Builders (NAHB) will release its Housing Market Index for February, which is expected to rise steadily by 47, from 47 in January.
- Federal Reserve Bank of San Francisco President Mary Daly and Federal Reserve Vice Chair for Supervision Michael Barr will speak later this Tuesday at 15:20 GMT and 18:00 GMT, respectively.
- Equities are flat to marginally in the green ahead of the US trading session.
- The CME FedWatch tool shows a 49.8% chance that interest rates will remain unchanged at current levels in June.
- The US 10-year yield is trading around 4.52% and is ticking higher in some risk off sentiment.
US Dollar Index Technical Analysis: Wild card
The US Dollar Index (DXY) is facing too many loose ends to choose a surefooted direction. Plenty of catalysts and headlines are still expected, ranging from headlines on Ukraine and Europe to more details on US President Trump’s reciprocal tariffs, all ahead of this weekend’s German election. The US Dollar could start to outperform if a peace deal is brokered without Europe, missing the opportunity to play an important role in the new world order.
On the upside, the previous support at 107.35 has now turned into a firm resistance. Further up, the 55-day SMA at 107.92 must be regained before reclaiming 108.00.
On the downside, look for 106.52 (April 16, 2024, high), 106.45 (100-day SMA), or even 105.89 (resistance in June 2024) as support levels. As the Relative Strength Index (RSI) momentum indicator in the daily chart shows room for more downside, the 200-day SMA at 104.94 could be a possible outcome.
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.
(This story was corrected on February 18 at 13:51 GMT to say that the US bond market is not closed but trading and heading higher due to some risk off.)
