US Dollar Falters After Initial Gains, Bond Market Jitters and Fed Speak in Focus

The US Dollar (USD), initially stronger on Tuesday, has since flattened as bond markets react to former US President Donald Trump’s spending plans and potential political implications. Fears of increased inflation due to Trump’s policies, coupled with a recent Supreme Court ruling favoring him, are contributing to this market unease.

Market Drivers: Trump’s Influence and Fed Uncertainty

  • Trump’s Spending Plans and Bond Market: Investors are worried about the potential inflationary impact of Trump’s proposed spending plans, causing jitters in the bond market.
  • Supreme Court Ruling: The recent ruling partially favoring Trump has increased his chances of re-election, further fueling bond market concerns.
  • Fed Speak and JOLTS Data: Market participants are eagerly awaiting comments from Fed Chairman Jerome Powell and ECB President Christine Lagarde at the Sintra ECB symposium, along with the release of JOLTS Job Openings data, for further clues on monetary policy direction.

Technical Analysis: DXY at a Crucial Juncture

The US Dollar Index (DXY) is currently trading at a critical juncture, facing opposing forces. While risk-off sentiment and the potential for Japanese intervention are providing some support, weaker US economic data and expectations of Fed rate cuts are weighing on the Greenback.

On the upside, the DXY needs to reclaim the pivotal level of 105.89 to continue its upward momentum. Breaking above this level could open the door for a rally towards the red descending trendline at 106.26 and the April peak at 106.52.

On the downside, support lies at 105.53, followed by the cluster of 55-day, 100-day, and 200-day SMAs around 105.00. A breach below this area could trigger a further decline towards 104.00.

Key Takeaways:

  • The US Dollar is experiencing volatility due to a combination of political and economic factors.
  • Bond market concerns about Trump’s policies and the Fed’s uncertain stance are key drivers.
  • Upcoming Fed speak and economic data will be crucial for determining the DXY’s next move.