• The US Dollar stabilizes on Wednesday after two days of losses as the correction aims to continue. 
• Traders are mulling the 10% levy over Chinese goods President Trump announced on Tuesday. 
• The US Dollar Index (DXY) tests the 108.00 mark and is set to head to the lower end of 107.00

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, stabilizes just below the 108.00 mark in the European trading session on Wednesday. However, selling pressure persists after US President Donald Trump released more comments on a possible 10% levy on all Chinese imports on Tuesday. Even Europe got targeted, though tariff debates seem still ongoing. 

Meanwhile, the US economic calendar is still very light. While Federal Reserve (Fed) officials remain in the blackout period ahead of the January 29 policy decision, traders focused on the Mortgage Bankers Association (MBA) Applications for the week ending January 17 on Wednesday. The previous week's surge of 33.3% was staggering, to say the least,  and traders are intrigued to see if a Trump-effect is also playing out in the mortgage market. 
 

Daily digest market movers: Still quiet

• The Mortgage Bankers Association (released on Wednesday its weekly Mortgage survey, which saw a very small 0.1% uptick in applications in the week ending January 17 compared to the previous week's 33.3% print. 
• Equities are tying up with gains on Wednesday. European equities are flat, while US futures are up near 0.50%.
• The CME FedWatch tool projects a 55.7% chance that interest rates will remain unchanged at current levels in the May meeting, suggesting a rate cut in June. Expectations are that the Federal Reserve (Fed) will remain data-dependent with uncertainties that could influence inflation during US President Donald Trump’s term. 
• The US 10-year yield is trading around 4.58% on Wednesday and has a long road to recovery if it wants to head back to last week’s peak near 4.75%. 
   

US Dollar Index Technical Analysis: Can’t go easy

The US Dollar Index (DXY) declines further as selling pressure persists. It is not so that tariffs are triggering the US Dollar correction. Instead, it is very unclear and misty communication, where many balloons are left hanging in the air, though nothing concrete has been implemented for now. 

If the recovery in the DXY wants to continue its ascent, the pivotal level to gain control of is 109.29 (July 14, 2022, high and rising trendline). Further up, the next big upside level to hit before advancing further remains at 110.79 (September 7, 2022, high). Once beyond there, it is quite a stretch to 113.91, a double top from October 2022.

On the downside, the first area to watch is 107.80-107.90, which held this week’s correction. Further down, the convergence of the high of October 3, 2023, and the 55-day Simple Moving Average (SMA) around 107.40 should act as a double safety feature to catch any falling knives. 

(Click on image to enlarge)

US Dollar Index: Daily Chart

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