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Prelim services PMI’s downside surprise was the latest driver to weigh on USD, which has been down for most of last week amid unwinding of trump trade after markets were disappointed with no immediate tariffs. Trump’s interview with Fox news last week that he can make a deal with Xi in relation to trade issues was one of the drivers to dent USD’s bullish momentum. DXY was last seen at 107.40 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.
Risks skewed to the downside
“Trump also said he would rather not have to use tariffs on China. In the interim, no immediate tariff is playing a bigger role in supporting risk sentiments while also taming USD bulls. That said, tariff concerns remain to some extent, and USD dips may still find support ahead of 1 February deadline for Canada, Mexico and China. However, we cautioned that USD longs risk further liquidation if tariffs are not imposed on 1 Feb or if they are deferred. Later this week on Thursday morning (3am SGT), FOMC meeting comes into focus.”
“This may be a non-event with expectations for hold after 100bp cumulative cut seen over the last 3 meetings. There will not be any dot plot projection at this meeting, so focus is on Powell’s press conference. It is likely that he will keep it brief and reiterate policymaking being data dependent. For now, markets are still projecting the next 25bp cut to come in June and slightly less than 2 cuts for the year. We are looking for 3 cuts.”
“Daily momentum remains bearish while RSI fell. Risks skewed to the downside. Bigger support lies at 106.40 (38.2% fibo). Resistance at 107.80 (23.6% fibo retracement of Oct low to Jan high), 108.70 (21 DMA) and 109.50 levels. On the data front, 4Q GDP and core PCE will be out on Thursday, which may have more influence on USD.”