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The US Dollar Index (DXY) is currently experiencing a period of consolidation, trading around 104.35, as the initial shock from President Donald Trump’s proposed auto tariffs begins to subside. While the overnight announcement of a potential 25% levy on auto imports, effective April 3rd, and threats of further tariffs against nations collaborating in response, initially pushed the dollar higher, the market appears to have largely absorbed this news. Attention is now shifting towards upcoming economic data, particularly Friday’s Personal Consumption Expenditures (PCE) release, which is expected to provide a clearer picture of the US economic landscape.
Thursday’s economic data releases, including the third reading of the fourth-quarter GDP, have offered little in the way of market-moving catalysts. The GDP annualized figure saw a slight upward revision to 2.4%, from the previous 2.3%, while Personal Consumption Expenditures (PCE) prices remained stable at 2.4%. The core PCE component, however, came in slightly below expectations at 2.6%, compared to the anticipated 2.7%. Meanwhile, US weekly jobless claims demonstrated positive signs, falling to 224,000, surpassing the 225,000 estimate. Continuing claims also beat expectations, registering at 1.856 million.
Looking ahead, the Kansas Fed Manufacturing Activity data for March is due, though no forecast is currently available. Later in the day, Federal Reserve Bank of Richmond President Thomas Barkin will address the Home Building Association of Richmond, potentially providing insights into the Fed’s economic outlook. Equity markets are displaying a mixed picture, with European stocks facing losses, while US equities are showing resilience and trending upwards. The CME Fedwatch Tool currently indicates a high probability (89.7%) of interest rates remaining unchanged at the 4.25%-4.50% range in May, with a 63.6% chance of a rate cut in June. The US 10-year yield is hovering around 4.37%, reflecting a slight increase as traders shift from US Bonds to Gold.
From a technical perspective, the DXY’s reaction to the tariff news has been muted, particularly when compared to the significant price action seen in precious metals. Traders are now awaiting clearer signals regarding the US economy, specifically whether it will exhibit exceptionalism, stagflation, or recession. A sustained weekly close above 104.00 could pave the way for a move towards the 105.00 level, where the 200-day Simple Moving Average (SMA) converges, creating a strong resistance zone. Key resistance levels above this include 105.53 and 105.89.
On the downside, the 104.00 level represents immediate support, following Tuesday’s bounce. A break below this level could trigger a move back into the March range between 104.00 and 103.00. A breach of the lower end of this range at 103.00 could then lead to a test of the 101.90 support level. The PCE data release on Friday is anticipated to be the next significant catalyst for the DXY, potentially providing the directional clarity the market currently lacks.
