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FOREX: Greenback Settles Lower Following Tariff Report Induced Volatility

FOREX
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  • FX volatility was stoked Monday on the back of a Washington Post report suggesting that US President-elect Donald Trump’s aides are "exploring plans" to apply tariffs to every country “but only cover critical imports”. The potential for slightly less protectionist trade policy bolstered the existing direction of travel for the greenback, with the USD index extending session lows and briefly bringing the DXY’s pullback to around 1.5% from last week’s highs.
  • However, President-Elect trump later claimed the article to be fake news and the US dollar partially recovered from its lowest levels. The USD index is currently down 0.64% ~108.30 as we approach the APAC crossover.
  • EURUSD surged through 1.0400, and notably rose above the 20-day EMA resistance to print a 1.0437 high, recovering over 200 pips from the 1.0226 lows on Jan 02. The rally was supported by higher-than-expected inflation figures from Germany, substantially narrowing the gap to resistance at the Dec 30 high of 1.0458. Spot has since slipped back to 1.0380.
  • Similar strength seen across higher beta currencies such as GBP (+0.76%), which has risen back above 1.25 and will look to initial firm resistance at 1.2562, the 20-day EMA. Similarly in emerging markets, USDMXN is 1.3% lower on the day at 20.35.
  • USDJPY volatility was in focus, as the pair slipped from a 157.96 high to a 156.24 low after the news. However, we have recovered roughly 1% from the lows, as the Dec 26 high at 158.08 remains in sight.
  • CAD is also 0.6% higher and has received particular attention given PM Trudeau has decided to resign. USDCAD’s pullback is seen as technically corrective at this juncture, with initial firm support only briefly being pierced at 1.4320, the 20-day EMA.
  • Swiss and Eurozone inflation data are due early Tuesday, before US ISM Services PMI and JOLTS data headline the docket in the US.
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  • FX volatility was stoked Monday on the back of a Washington Post report suggesting that US President-elect Donald Trump’s aides are "exploring plans" to apply tariffs to every country “but only cover critical imports”. The potential for slightly less protectionist trade policy bolstered the existing direction of travel for the greenback, with the USD index extending session lows and briefly bringing the DXY’s pullback to around 1.5% from last week’s highs.
  • However, President-Elect trump later claimed the article to be fake news and the US dollar partially recovered from its lowest levels. The USD index is currently down 0.64% ~108.30 as we approach the APAC crossover.
  • EURUSD surged through 1.0400, and notably rose above the 20-day EMA resistance to print a 1.0437 high, recovering over 200 pips from the 1.0226 lows on Jan 02. The rally was supported by higher-than-expected inflation figures from Germany, substantially narrowing the gap to resistance at the Dec 30 high of 1.0458. Spot has since slipped back to 1.0380.
  • Similar strength seen across higher beta currencies such as GBP (+0.76%), which has risen back above 1.25 and will look to initial firm resistance at 1.2562, the 20-day EMA. Similarly in emerging markets, USDMXN is 1.3% lower on the day at 20.35.
  • USDJPY volatility was in focus, as the pair slipped from a 157.96 high to a 156.24 low after the news. However, we have recovered roughly 1% from the lows, as the Dec 26 high at 158.08 remains in sight.
  • CAD is also 0.6% higher and has received particular attention given PM Trudeau has decided to resign. USDCAD’s pullback is seen as technically corrective at this juncture, with initial firm support only briefly being pierced at 1.4320, the 20-day EMA.
  • Swiss and Eurozone inflation data are due early Tuesday, before US ISM Services PMI and JOLTS data headline the docket in the US.