Oh, the dollar’s quite a tale these days, isn’t it? Lately, the jolly old greenback’s seen a bit of a lift. This, coincidentally, as Trump’s been threatening tariffs again. Rather reminiscent of a more restrained sort of Liberation Day, I’d say. Yet, one wonders what lies ahead for the dollar now.
In truth, Trump’s tariff antics might be the real concern. Should he decide to go ahead with those threats on 1 August, we’re in for a bit of a spectacle. He’s been delaying them long enough, leading some to believe the tariffs might not really affect prices. However, take heed, it certainly will, though perhaps less permanently than one might expect. And with the potential for steeper tariffs looming in the near future, deciphering the inflation data becomes a tad more challenging.
Now, returning to our beloved dollar, it’s found some footing recently. The short squeeze has been building nicely over the past fortnight. But, it could have been a far more robust scene for the dollar if it hadn’t been for those meddlesome situations—Trump’s pressure on the Fed, and Waller and Bowman’s newfound dovish stances.
EUR/USD hourly chart
Now, take a gander at the EUR/USD. Over the past two weeks, the pair’s been resolutely defended by key hourly moving averages. This shows dollar buyers, formerly shorts, are holding steady, focusing on Trump’s tariffs this very month.
Had Trump not stepped in with his critiques, and those more dovish tones from Waller and Bowman hadn’t surfaced, we might have seen the dollar surge even more. Talks of a September rate cut would probably be off the table too. Nonetheless, this isn’t a reality we’re served today. Even with the short squeeze ongoing, the dollar isn’t wholly safe from changing sentiments. Waller’s remarks just yesterday were enough to challenge the current resolve. A single shift from any Fed policymaker could very well trigger yet another change.
In appraising the short squeeze, the technical aspects are your ally. The dollar’s been in quite the bind since April, so any pullback at this juncture is merely that. Nothing suggests a substantial turnaround in its prospects. The market seems to have priced in much of the tariffs and TACO, as discussed here last week.
Essentially, observing the charts is vital as the short squeeze remains. The market’s gaze stays fixed on Trump’s tariff actions ahead of the looming deadline. Yet, any policy inconsistency or TACO fiasco still threatens the dollar’s chance at recovery. The stock market certainly seems prepared, with Wall Street soaring to record highs. Could it be that FX and the bond market need to catch up?
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