US Dollar on a neutral stance on quiet Tuesday
- The US Dollar Index fluctuates around the mid-104s in Tuesday’s session, easing from earlier strength.
- Optimism around reduced tariffs fades as mixed Fed comments muddy interest rate expectations.
- Momentum improves, but key moving averages still flash warning signs near major resistance zones.
The US Dollar Index (DXY) is experiencing mixed performance on Tuesday, trading around the middle of the 104.00 zone. Earlier in the day, the Greenback found support on stronger services activity and signs that proposed tariffs may be more targeted than feared.
However, uncertainty returned as new headlines from US policymakers tempered the optimism. The evolving rhetoric on inflation and trade created a back-and-forth movement in the DXY, now grappling with nearby resistance. From a technical standpoint, the Moving Average Convergence Divergence (MACD) prints a mild buy signal, while the Relative Strength Index (RSI) is neutral. Despite improving momentum, key Simple Moving Averages (SMAs) suggest the broader setup still leans bearish.
Daily digest market movers: Sentiment weighs on US Dollar after earlier tariff optimism
- The DXY trades in a tight range around the mid-104s, struggling to sustain upside after testing higher early Tuesday.
- President Trump hinted at exemptions for certain countries from April tariffs, raising hopes of limited global trade fallout.
- Trump also reaffirmed upcoming tariffs on aluminum, autos and pharmaceuticals, keeping markets alert for trade-related volatility.
- Fed Governor Adriana Kugler flagged fresh inflation pressures, noting worrying trends in select goods categories.
- The New York Fed’s John Williams said both firms and households are navigating deep uncertainty about economic prospects.
- Despite neutral tones from both Fed officials, traders see inflation fears potentially slowing the pace of rate cuts. This Friday’s Core PCE data remains the key event with markets closely watching the Fed’s preferred inflation indicator.
Technical analysis: DXY hesitates below key barriers despite improving momentum
The US Dollar Index trades with caution near the 104.00 handle, reflecting a balance between softening sentiment and residual optimism from Monday’s gains. The MACD currently prints a mild buy signal at -0.774, supported by a positive 10-day momentum reading. Meanwhile, the Relative Strength Index (RSI) sits at a neutral 40.20, suggesting the pair is not oversold but lacking strong bullish conviction. The combined RSI/Stochastic indicator also reflects hesitation, reading just above 96.
Despite these hints of recovery, the broader outlook remains under pressure. The 20-day, 100-day and 200-day Simple Moving Averages (SMAs) — at 104.53, 106.74, and 104.93 respectively — continue to trend lower. The 30-day Exponential Moving Averages (EMAs) and SMAs (both above 105.00) reinforce a heavy overhead zone.
On the downside, support is seen at 104.02 and 103.76, while resistance lies around 104.30, 104.53 and 104.54. The index may need a strong macro catalyst to break free from this congested range.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
