The US Dollar Index (DXY), which represents the Greenback’s value against six major currencies, stands near 99.09 after rebounding from an earlier drop. The decline followed US President Donald Trump’s decision to delay tariff implementation on EU goods from June 1 to July 9, temporarily easing market tensions and enhancing risk assets.

Despite the initial recovery, economic challenges remain. President Trump’s proposed tax bill is nearing a Senate vote, potentially worsening the US debt situation as rising yields could prompt higher demand for US debt premiums.

Reduction In Bearish Dollar Positions

In recent market activity, speculative trading has seen a reduction in bearish US Dollar positions, now at $12.4 billion, down from $16.5 billion last week. European equities have climbed over 1% with optimism, while US futures demonstrate favourable movement.

The US economic schedule is quiet due to Memorial Day, with attention on upcoming GDP data and Personal Consumption Expenditure figures. The CME FedWatch tool reflects only a 5.6% probability of a Federal Reserve interest rate cut in June.

Technically, the DXY shows recovery signs after recent lows, though economic concerns persist. Resistance is marked at 100.22, with a trend line near 100.80, while continued selling pressure might lead to a decline to the yearly low of 97.91.

With markets digesting the delayed tariffs on EU goods, the Dollar’s mild rebound may appear reassuring at first glance. However, much of this is likely sentiment-driven and not anchored in improving fundamentals. The short-term relief from postponed trade measures shouldn’t distract from underlying pressures that continue to develop beneath the surface.

Tax Bill Vote And Fiscal Deficit Expectations

The upcoming tax bill vote in the Senate remains a focal point. If passed, expectations lean towards an increase in the fiscal deficit, which could place upward stress on Treasury yields. From our perspective, this raises borrowing costs, an outcome that tends to make dollar-denominated assets more appealing—though not uniformly. Timing, as always, matters.

Positioning in the currency market is revealing. The reduction in net bearish bets on the Dollar from $16.5 billion to $12.4 billion in a single week reflects a tempering of pessimism. It’s not a shift to outright confidence, but perhaps an attempt to stay nimble ahead of high-impact events. This pullback implies that traders have taken some risk off the table but are not yet convinced of a prolonged upside move.

As we glance at the broader picture, the market’s risk appetite has improved somewhat. European equities rising over 1% doesn’t occur in a vacuum. This enthusiasm may be tied to the trade reprieve and a muted U.S. economic calendar, with Memorial Day limiting macro catalysts. Still, soft global growth, fiscal strains, and the lack of immediate triggers from Fed policy keep traders cautious.

Fed expectations, as measured by the CME FedWatch tool, show just 5.6% odds of a cut in June. This low probability provides some clarity—policymakers are signalling patience. This stance aligns with inflation metrics, particularly Personal Consumption Expenditures (PCE), which are due soon. How these numbers shape expectations will be instrumental.

Technically, the Dollar Index is showing attempts to claw back from last week’s dip. Resistance at 100.22 will be a key hurdle, just below the more fortified level at 100.80 defined by a longer-term trend line. Short-lived rallies lacking conviction may struggle at these thresholds. On the flip side, any renewed softness could drag the Greenback back toward its yearly low at 97.91. These levels matter, especially for those navigating near-term volatility.

In the interim, we anticipate thinner volumes until U.S. data releases resume. That said, even lower liquidity can sharpen price movements. For now, premiums in the options market and adjustments in futures positioning are worth monitoring closely—these tend to move ahead of the underlying instruments.

We continue to weigh upcoming economic signals on both sides of the Atlantic. European optimism may lift the euro in short bursts, while the Dollar’s next move relies more heavily on domestic fiscal policy negotiations and inflation inputs. Keeping timeframes tight and reactions fast may serve well, particularly as consensus is still forming around the implications of rising debt levels and delayed tariffs.

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