Dollar Gains on Tariff Clarity and Robust Data, But Faces Renewed Headwinds

Key Takeaways:

*The market welcomed Trump’s detailed trade plan ahead of August 1 rollout.

*Solid U.S. data reinforces greenback strength, though Treasury yields slid to monthly lows.

*Traders now await Powell’s speech for clues on the Fed’s policy path amid global trade jitters.

Market Summary:

The U.S. dollar extended its gains, climbing over 0.7% to reach a three-week peak, as markets welcomed clarity on the Trump administration’s forthcoming tariff schedule set to take effect August 1. The greenback’s advance drew additional support from a trifecta of robust economic indicators—firmer inflation data, resilient labor market metrics, and an upwardly revised GDP print—reinforcing perceptions of relative U.S. economic strength.

Yet the currency’s momentum faces potential headwinds in the coming sessions. European Union policymakers are convening emergency talks to draft retaliatory measures, preparing for the increasing likelihood of a no-deal outcome in transatlantic trade negotiations. This brewing trade war escalation coincides with a concerning dip in U.S. Treasury yields to monthly lows, reflecting growing risk aversion that could ultimately undermine the dollar’s yield advantage.

Market participants now await Federal Reserve Chair Jerome Powell’s highly anticipated speech, which may provide critical signals about the central bank’s policy trajectory ahead of this month’s rate decision. With interest rate futures currently pricing in heightened odds of policy easing, Powell’s tone could either validate the dollar’s recent strength or trigger a reversal should he emphasize growing economic uncertainties. The currency’s near-term path appears increasingly contingent on this delicate balance between trade developments and monetary policy expectations.

Technical Analysis 

DXY H4: 

The U.S. dollar index has risen over 2.5% from its July low, forming an uptrend channel amid broad dollar strength. However, the latest price action shows the index breaking below that channel, raising concerns over a potential trend reversal.

The near-term support sits at the 98.15 level. A sustained break below this threshold could confirm a bearish signal for the greenback.

Momentum indicators echo the weakening trend. The Relative Strength Index (RSI) has retreated to the midline after staying in bullish territory, while the MACD has formed a bearish crossover above the zero line, both pointing to waning bullish momentum and suggesting a potential shift toward a downside bias.

Resistance Levels: 99.20, 100.30
Support Levels: 98.15, 97.20