• The US Dollar soars on the back of concerns over a higher universal tariff plan.
• The DeepSeek saga played into President Trump's hand to request higher tariffs. 
• The US Dollar Index (DXY) hits a fresh weekly high at 108.06 while trying to consolidate above the psychological 108.00 level.

The US Dollar Index (DXY), which tracks the performance of the US Dollar against six different major currencies, trades slightly below 108.00 at the time of writing and is up over 0.50%. The Nvidia rout from Monday, where Nvidia (NVDA) lost over $600 billion in market capitalization at one point, played into US President Donald Trump’s hand regarding his plan to impose a universal tariff. Markets even got more shaken up when t Trump advocated for a gradually increasing universal tariff plan, bigger than 2.5%. 

On the economic data front, all eyes are on the US Federal Reserve (Fed) and the European Central Bank (ECB), which will announce their first monetary policy decisions this year on Wednesday and Thursday, respectively. Ahead of those monetary policy meetings, preliminary reading for the US December Durable Goods is due later in the day. This will be a good litmus test to see how the US consumer is behaving at the moment ahead of any inflation readings.  
 

Daily digest market movers: Durable Goods on deck

• Asian markets will quiet down this week and next. With the Lunar New Year starting this Tuesday, Chinese traders will return to the markets on February 5. 
• At 13:30 GMT, December US Durable Goods Orders data is due:
  • Headline Durable Goods Orders are expected to increase by 0.8% from -1.2% in November.
  • Durable Goods Orders without Transportation are seen rising 0.4% compared to -0.2% in the previous month. 
• At 15:00 GMT, the US Conference Board (CB) Consumer Confidence data for January will be released, expected to head to 105.7 from 104.7. Apart from that, the Richmond Fed Manufacturing Index for January should tick up marginally to -8 from -10.
• Equities are recovering from their steep correction seen Monday in the Nvidia (NVDA) rout spillover. Broadly, most European indices are recovering around 0.50%, and US equity futures are positive, with the Nasdaq leading the recovery. 
• The CME FedWatch tool projects a 51.2% chance that interest rates will remain unchanged at current levels in the May meeting, with the remaining 48.8% chance of a rate cut that month. 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 4.569% and starts its recovery towards the more-than-one-year high seen earlier this month at 4.807%.
   

US Dollar Index Technical Analysis: Inflation concerns could grow from here

Although the US Dollar Index (DXY) might recover on Tuesday, this does not mean that all downside risk is avoided. Despite its surge back to 108.00, a rejection could occur again, causing the US Dollar Index to fall back to 107.59 or lower. The Relative Strength Index (RSI), which is still below 50, supports that risk possibility as it has more room to move lower before hitting oversold conditions. 

The road to recovery is still not done and needs more upside. First, the psychological level of 108.00 must be recovered on a daily close. From there, 109.29 (July 14, 2022, high and rising trendline) is next to pare back last week’s losses. Further up, the next upside level to hit before advancing further remains at 110.79 (September 7, 2022, high). 

On the downside, the 55-day Simple Moving Average (SMA) at 107.59 and the October 3, 2023, high at 107.35 acts as a double safety feature to support the DXY price. For now, that looks to be holding, though the Relative Strength Index (RSI) still has some room for the downside. Hence, rather look for 106.52 or even 105.89 as better levels for US Dollar bulls to engage and trigger a reversal. 

(Click on image to enlarge)

US Dollar Index: Daily Chart

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