• USD surged on Trump’s tariff threats
• DeepSeek fears eased, aiding USD rebound
• Any Fed rate change today will be market shocker
• Key USD levels: 108.203 (resist.), 107.692 (support)

The US dollar index experienced a notable upward gap on Tuesday (Jan 28).

The greenback’s jump was primarily fuelled by President Trump's threat for bigger-than-2.5% tariffs across the board.

Also, the US dollar rebounded after the declines in the day prior (Monday, Jan 27th) as fears surrounding the market-rattling DeepSeek saga subsided.

At the time of writing, the USDInd has lurched higher and is now testing resistance at its upper downward-sloping trendline that began from 110.266 – the highest intraday level since November 2022.

FX traders worldwide will be hanging on to every word, nuance, and signal from the Fed today.

Later at 19:00 GMT, the first US interest rate decision for 2025 and the release of the FOMC policy statement could cause significant volatility in the US dollar index.

Traders and investors are widely expecting the US central bank to leave interest rates unchanged.

The key focus will be on their remarks regarding inflation, especially in light of President Trump’s proposed policies.

Trump’s policies could reawaken US inflationary pressures, and if so, prevent the Fed from proceeding with more rate cuts this year. If so, that could further bolster the US dollar’s strength.

On the other hand, if the Fed believes they can keep cutting interest rates as previously intended, despite the risk from Trump’s inflation-stoking policies, that could weaken the US dollar.

At the time of writing, markets predict a 61% chance that the next Fed rate cut will only arrive in May 2025.
 

From a technical perspective …

Looking at the daily timeframe the US dollar index is finding support for the second consecutive day on the 50-day simple moving average as it approaches the earlier-mentioned downward-sloping trend line that began on January 13, 2025.

If the Federal Reserve delivers hawkish comments (i.e. less chances of rate cuts), the USD bulls (those expecting the dollar to rally) must be alert to the following pivotal resistance levels:

• 108.203 – downward-sloping trend line mentioned earlier
• 108.434 – 38.2% Fibonacci retracement level
• 108.685 – 21-day simple moving average

Conversely, US dollar index bears (those anticipating a price decline) should focus on these critical support levels:

• 107.692 – 50-day simple moving average
• 107.303 – 61.8% golden Fibonacci level
• 106.102 – A significant support zone on the weekly charts

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