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    USDX Surges as Market Reacts to Trade Tensions

    February 3, 2025

    Key Points:

    • Trump enforces tariffs on Mexico, Canada, and China, triggering market turmoil.
    • USDX surges 1.30% to 109.411, driven by trade tensions and Fed outlook.
    • USD/CAD and USD/MXN hit multi-year highs, while EUR/USD declines to 1.02439.
    • US economic data and Fed signals could shape the next move.

    The US dollar extended its rally on Monday, with the USDX climbing 1.30% to 109.411, reaching a session high of 109.726. The greenback’s strength came amid heightened trade tensions following President Donald Trump’s tariff moves, pushing USD/CAD and USD/MXN to multi-year highs.

    Meanwhile, EUR/USD retreated to 1.02439, weighed down by concerns over the European Central Bank’s dovish stance. Market participants also pared back expectations for Federal Reserve rate cuts after stronger-than-expected US economic data signaled that the Fed might maintain a restrictive policy stance longer than anticipated.

    Technical Analysis: USDX Breaks Key Resistance

    Image: USDX rises 1.30%, approaching key resistance at 109.731, with bullish momentum slowing as price consolidates near recent highs, as seen on the VT Markets app.

    USDX closed at 109.411, gaining 1.30% after opening at 108.006 and reaching a high of 109.726. The index surged on strong bullish momentum but is now consolidating near key resistance.

    The moving averages (MA 5,10,30) maintain a bullish structure, with short-term MAs trending above the longer-term MA. However, price action suggests hesitation near resistance, indicating a potential slowdown.

    The MACD (12,26,9) confirms fading momentum, with the histogram contracting and the MACD line approaching the signal line. This signals weakening buying pressure, suggesting a possible pullback or consolidation.

    Immediate resistance stands at 109.731, while support is seen at 109.086. A break above resistance could extend gains, while failure to hold above support may trigger a retracement toward lower levels.

    Market Outlook: Key Events to Watch

    Traders will be closely monitoring any additional tariff-related headlines and Fed commentary in the coming days. US employment data and ISM services figures later this week could further influence rate expectations and the dollar’s trajectory.

    If economic indicators continue to outperform, the USDX may see further gains, while any signs of economic slowdown could revive speculation of earlier Fed rate cuts, leading to a corrective move lower.

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