- The US Dollar Index turns flat after briefly testing the 100.00 mark.
- Markets are seeing the stable US image dented after Trump says the US might walk away for good from Russia-Ukraine peace talks.
- The US Dollar Index stable above for now 100.00, though a revisiting of 2022 lows could become possible.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, turns flat on Tuesday as markets continue to digest the recent downgrade of the rating in US debt, which led to a rollercoaster in US bond markets.
Outside the US, geopolitical tensions are picking up again. France, the United Kingdom and Canada are considering sanctions on Israel if the country does not call off its ground offensive in Gaza and allows food supplies to enter the Strip. Israel’s Prime Minister Benjamin Netanyahu pushed back by saying that Israel has the right to defend itself.
Regarding the Russia-Ukraine war, EU leaders condemned the retreat of United States (US) President Donald Trump after his two-hour call with Russian President Vladimir Putin. Despite the bold claims that a deal would be brokered within days after becoming President and that a peace deal would not be possible without the US, President Trump said that the US would back out of any further talks by saying “it’s not our war to deal with”, Bloomberg reported. The unraveling adds to further losing credibility, hitting the value of the US Dollar.
In a relatively calm week in terms of economic data, traders brace for more comments from Federal Reserve (Fed) officials on Tuesday after Monday’s mostly hawkish tone seen among many of them.
Daily digest market movers: Too difficult to solve
- Markets are downgrading the US Dollar even further as US President Trump is apparently unfit to solve the Ukraine-Russia debacle. After the two-hour call with Russian President Putin, President Trump said talks between the EU, Russia and Ukraine would start, without any military or sanction-related support in order to speed up the peace process, Bloomberg reports.
- An army of Fed speakers stands ready on an otherwise dry Tuesday in terms of US economic data:
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- At 13:00 GMT, Federal Reserve Bank of Richmond President Thomas Barkin speaks on growth in rural communities at the Investing in Rural America Conference in Roanoke, Virginia.
- At 17:00 GMT, St. Louis Fed President Alberto Musalem speaks at the Economic Club of Minnesota Event at the University of Minnesota Campus.
- Near 21:00 GMT, Federal Reserve Bank Governor Adriana Kugler delivers a commencement address at the Spring 2025 Berkeley Economics Commencement Ceremony..
- At 23:00 GMT, Federal Reserve Bank of Atlanta Raphael Bostic speaks on a panel with other Reserve Bank presidents at the Atlanta Fed’s 2025 Financial Markets Conference in Florida.
- At that same time, Federal Reserve Bank of San Francisco President Mary C. Daly and Federal Reserve Bank of Cleveland President Beth M. Hammack both participate in a moderated Q&A.
- Equities are mixed on Tuesday, with European equities edging up after the German DAX eked out another all-time high. US equity futures are facing some downside on Tuesday.
- The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in June’s meeting at just 8.6%. Further ahead, the July 30 decision sees odds for rates being lower than current levels at 33.1%.
- The US 10-year yields trade around 4.48%, after a small dip this Tuesday, rates are soaring again.
US Dollar Index Technical Analysis: Where is the love?
The US Dollar Index is losing some more of its shine on Tuesday. After the creditworthiness and its safe-haven status issue due to the credit rating downgrade, the fact that President Trump might walk away from any further attempts to end the war between Russia and Ukraine can be perceived as another element of untrustworthiness. The fact that the Trump administration might switch or even U-turn on any matter will stick with trader sentiment when considering how to deal with the US Dollar.
On the upside, 101.90 is the first big resistance again as it already acted as a pivotal level throughout December 2023 and as a base for the inverted head-and-shoulders (H&S) formation during the summer of 2024. The 55-day Simple Moving Average (SMA) at 101.94 reinforces this area as strong resistance. In case Dollar bulls push the DXY even higher, the 103.18 pivotal level comes into play.
As for supports, the ascending trend line and support level at 100.22 is under pressure and could snap at any moment if more selling pressure emerges. A nosedive move could materialize towards the year-to-date low of 97.91 and the pivotal level of 97.73. 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
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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