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The dollar index is expected to test the 100 mark, and the market turns to focus on Fed interest rate decisions
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Hello everyone, today XM Forex will bring you "[XM Forex Market Review]: The US dollar index is expected to test the 100 mark, and the market turns to pay attention to Fed interest rate decisions." Hope it will be helpful to you! The original content is as follows:
On the Asian session on Tuesday, the U.S. dollar index is expected to test the 100 mark, and traders are waiting for xmmarkets.cnments from Federal Reserve Chairman Powell to make Wednesday to get clues about the interest rate path. The Federal Reserve has maintained its policy interest rate in the range of 4.25%-4.50% since December. The US March trade account will be released on this trading day. Investors need to pay attention to it. In addition, we need to continue to pay attention to the relevant news about the geopolitical situation and international trade situation.
Analysis of major currencies
United States dollar: As of press time, the US dollar index hovered around 99.99, up 0.19% during the day. The Federal Reserve will announce a monetary policy resolution on Wednesday, and the market almost fully expects it to keep interest rates unchanged in the range of 4.25%-4.50%. Therefore, the main trigger for the dollar move will be the Federal Reserve and its Chairman Jerome Powell’s monetary policy guidance for the rest of the year. Technically, the US dollar index is within the intraday range of 99.46 to 100.05. The momentum remains neutral, with the Relative Strength Index (RSI) of 40.84, while the moving average convergence/divergence (MACD) sends a buy signal. However, the 20-day, 100-day and 200-day simple moving averages are at 100.13, 105.38 and 104.39, respectively, all pointing to a sustained bearish trend. The 10-day and 30-day exponential moving averages are at 99.77 and 101.09, respectively, further applying downward pressure. Key support is at 99.60, and resistance is at 99.77, 100.08 and 100.13.
1. The United States refuses to provide Japan with a reciprocal tariff exemption
People familiar with the matter revealed that in recent negotiations, the United States rejected Japan's xmmarkets.cnprehensive exemption of 10% reciprocal tariffs and tariffs targeting specific countries. Sources said that U.S. officials, including U.S. Treasury Secretary Becent Becent, said in talks with Japanese chief negotiator Ryo Akazawa last week that the Trump administration intends to cut only 14% of specific country tariffs, which were suspended until early July. In the second round of negotiations, the United States emphasized that based on the progress of the negotiations, it will only consider extending the suspension measures of 90 days or reducing tariffs by 14%. Tokyo has been seeking the U.S. to xmmarkets.cnpletely eliminate reciprocal tariffs, 25% auto tariffs and 25% steel and aluminum tariffs. Washington once said it would not negotiate 10% of the world's basic tariffs or tariffs on automobile and steel products.
2. Economist: US service industry PMI is worrying
S&P global market situation"While tariffs mean manufacturing dominates the news, the larger U.S. service economy is developing a worrying backdrop, with business activity and recruitment close to stagnation in April amid a plunge in business confidence. Service providers for businesses and consumers, especially financial services xmmarkets.cnpanies, are reporting a significant weakening of growth outlook, citing recently announced tariffs and ongoing federal spending cuts that have exacerbated uncertainty in the economic outlook. A key weakness area is the decline in service exports, which is currently in 2022 with The rate has never been seen before, but domestic demand has been reported to be weaker as confidence declines. The rising prices of imported goods caused by tariffs have also pushed up costs for service xmmarkets.cnpanies, leading to price increases, especially in consumer-facing industries such as restaurants and hotels. The result is that service industry growth has stagnated, inflation or stagflation has increased. ”
3. Market analysis: There is almost no sign of weakness in U.S. economic data. The Fed will not cut interest rates this week
Economist David Kohl of Swiss Bosson Bank said that the U.S. economy showed little signs of weakness. "U.S. unstable and restrictive economic policies, including the introduction of high tariffs, have so far had no expected negative impact on labor market data." The economist noted that better-than-expected new jobs and low unemployment rates have driven continued strong growth in private consumption. Kohl added that the data is very solid and the Fed is not expected to cut interest rates this week. Kohl said the Fed may ignore negative data on the survey indicators and wait until economic data shows weakness before taking action.
4. German Chancellor-elect Merz vowed to "reform Germany" to all cabinet members.
On Monday, German Chancellor-elect Merz promised to take quick action to reform Europe's largest economy. One day later, he will be sworn in as prime minister and lead the coalition party to form a coalition government with the center-left Social Democratic Party (SPD). “From tomorrow, you will have a government determined to move Germany forward through reform and investment,” Mertz said. Earlier on Monday, the SPD announced the cabinet candidates, both new and well-known. The SPD had said last week that the party's 47-year-old co-chairman Klin Bayer will serve as Treasury Secretary. Defence Secretary Pistolius, 65, is the only minister to remain in the new administration, and his straightforward style and firm stance on national security issues have made him popular. He has said that due to Russia's threat, Germany should be ready to face a war by 2029. The SPD also nominated 57-year-old former Bundestag Speaker Bebel Bass as Labor Minister, 49-year-old former East German xmmarkets.cnmissioner Kasten Schneider as newly established Minister of Environment and Climate Protection, and 35-year-old Lim Alabali Radowan as Development Minister.
5. Recession concerns eased the euro zone's investor confidence index rebounded in May
On Monday, a survey showed that the eurozone's May investor confidence recovery was stronger than expected, but was still at a low level. Last month, U.S. President Trump's tariff measures caused a sharp decline in euro zone investor sentiment. The euro zone's Sentix index rose to -8.1 from -19.5 in April, better than the market's expectations of -12.5. The current situation index unexpectedly rebounded to -19.3, the highest level since August 2024, although it is still in the negative area. "This is amazing because it shows that investors have largely abandoned the recession concerns they expressed last month," Sentix said in a statement. Sentix added that from May 1 to 3, the 1,068 investors surveyed appeared to appreciate the European xmmarkets.cnmission's calm response to U.S. tariffs so far.
Institutional View
1. Dansk: Europe and the United States will rise to 1.22 within 12 months
Dansk Bank expects that as the Federal Reserve resumes interest rate cuts, the US dollar will be suppressed, and the euro-dollar exchange rate will rise to 1.22 from the current 1.1340 to 1.22 within 12 months. The bank predicts that the U.S. will cut interest rates by 125 basis points by June 2026 as the damage caused to the economy by Trump's tariff policy begins next month. "By June and July, the Fed may have a clearer understanding of the final level of tariffs and the future of other "peer" tariffs," the bank's analysts said in a report. Dansker said the Fed is expected to remain silent on Wednesday, but it is unlikely to xmmarkets.cnmit to a rate cut in advance at this stage.
2. Analysts: The Fed is unlikely to support the US dollar, the Fed is expected to keep interest rates unchanged on Wednesday, and this decision is unlikely to provide too much support to the US dollar. Mialich said Fed Chairman Powell made it clear in a speech last month that the central bank will wait for a clearer message on how tariffs will affect the economy and inflation. The dollar index remains weak, and the options market still shows investors tend to bet on the dollar's decline rather than rise. Yixin Bank expects Europe and the United States to continue trading around 1.13. 3. Deutsche Bank: Uncertainty in the U.S. policy may lead to a long-term decline in the U.S. dollar.
Ulrich Leuchtmann, an analyst at xmmarkets.cnmerzbank, said that the dollar may fall in the long term because Trump's policy portfolio has no checks and balances. He said the implicit threat to the independence of the Federal Reserve by Trump’s recent remarks “is just one of several channels in which the dollar may weaken.” Trump announced a 100% tariff on films produced overseas on Sunday, suggesting that the tariffs remain a threat. In addition, the risk of rising U.S. Treasury yields is also emerging, especially considering the expansionary fiscal policy of the United States. Leuchtmann said the dollar's rebound could be temporary.
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