The US Dollar (USD) experienced a surge early this week, as investors sought refuge in the safe-haven currency following an incident at a Donald Trump rally. With Trump’s popularity potentially on the rise, bond markets have reacted negatively, fearing the impact of his spending policies on the US deficit and debt.
Market Drivers and Outlook
This week, market sentiment is expected to be heavily influenced by headlines surrounding the incident and Trump’s subsequent speeches. The US Retail Sales data for June, scheduled for Tuesday, will also be a key focus for investors. Additionally, Federal Reserve (Fed) Chairman Jerome Powell is slated to give an interview on Bloomberg later today.
Bond markets are currently experiencing a sell-off, with yields rising. This mirrors a similar reaction seen a few weeks ago when Trump was leading in the polls. Investors are concerned about the potential devaluation of US debt under a Trump presidency.
Equity markets are showing mixed reactions, with Asian and European equities in negative territory while US futures are trading higher.
The CME FedWatch Tool continues to indicate a high probability of a 25-basis-point rate cut in September, despite the recent market volatility.
US Dollar Index (DXY) Technical Analysis: Pivotal Week Ahead
The DXY is receiving support from the recent events, reminiscent of Trump’s previous presidency which generally bolstered the Greenback. However, the potential impact of his spending plans on the US deficit and debt raises questions about the sustainability of this support.
Technically, the DXY is currently trading below its 200-day, 100-day, and 55-day Simple Moving Averages (SMAs). The first resistance to overcome is the 200-day SMA at 104.38, followed by the 100-day SMA at 104.81 and the declining 55-day SMA at 105.07.
On the downside, a critical support level is identified at 103.99/104.00. Repeated tests of this level, with diminishing bounces, could signal a potential breakdown. Traders should also watch for a potential “death cross” pattern, where the 55-day SMA crosses below the 100-day and/or 200-day SMAs, which could trigger a prolonged sell-off.