US Dollar Index Analysis: Bearish Signals Point to 105.420 Target After Tariff News

U.S. Dollar Index Slips as Sellers Target Key Support Level

The U.S. Dollar Index (DXY) declined on Thursday, pressured by renewed selling as traders reacted to U.S. President Donald Trump’s latest tariff threats and a mix of economic data. After five sessions of consolidation, Thursday’s sell-off signals potential for a test of last week’s low at 106.566, a critical support that could accelerate losses if breached.

Bearish Technical Signals Build Pressure

The Dollar Index is showing a bearish technical pattern, with two lower tops at 109.881 and 108.523 following a peak at 110.176. Lower bottoms at 106.969 and 106.566 reinforce this negative setup.

Should this formation hold, technical indicators suggest a potential move toward the December 6 low at 105.420, with extended downside into a key retracement zone between 105.167 and 103.984. The 200-day moving average at 104.926, nestled within this zone, represents a crucial support level. On the upside, the 50-day moving average at 108.046 continues to limit any bullish momentum.

Tariff Uncertainty Weighs on Market Sentiment

Trump’s announcement of new tariffs—including duties on lumber, automobiles, pharmaceuticals, and semiconductors—added to market uncertainty. The president indicated tariffs could rise “substantially” over the next year, with some potentially effective as early as April 2.

Trump also deepened geopolitical tensions by labeling Ukrainian President Volodymyr Zelenskiy a dictator, unsettling European officials. Meanwhile, his mixed signals on U.S.-China trade talks kept traders cautious, with no clear timeline for a visit by Chinese President Xi Jinping to the United States.

Currency analyst Michael Pfister noted Thursday’s dollar weakness was more contained compared to previous tariff-related moves, suggesting markets might be gradually pricing in the risks of Trump’s trade policies.

Mixed Economic Data and Fed Caution

U.S. Treasury yields edged lower as traders digested a blend of economic data and Trump’s tariff agenda. Weekly initial jobless claims reached 219,000, slightly above the expected 215,000, while the Philadelphia Fed Manufacturing Index provided fresh insights into economic activity.

Federal Reserve officials, including Chicago Fed President Austan Goolsbee and Governor Adriana Kugler, delivered speeches throughout the day. Meeting minutes showed the Fed’s cautious stance, emphasizing the need for further inflation reduction before considering rate cuts. Officials also flagged potential risks from trade and immigration policy changes, underscoring concerns about Trump’s tariff strategy.

Yen Gains as BOJ Rate Hike Speculation Grows

The yen surged to a more than two-month high against the dollar, trading down 0.8% at 150.27. Market jitters over Trump’s tariff threats, combined with speculation of further Bank of Japan (BOJ) rate hikes, supported the yen. Against the euro, the yen rose 1%, marking its largest daily gain since January 27.

BOJ Governor Kazuo Ueda’s meeting with Prime Minister Shigeru Ishiba did not address long-term interest rates, which reassured markets. Bank of Singapore strategist Moh Siong Sim suggested this may have been interpreted as a green light for more yen strength and a possible BOJ hike soon.

Market Forecast: DXY at Risk of Deeper Losses

If the DXY breaks below 106.566, downside momentum could push it toward 105.420 and into the critical retracement zone between 105.167 and 103.984. The 200-day moving average at 104.926 will be a key support to watch.

Given tariff uncertainties, geopolitical risks, and the Fed’s cautious tone, the dollar may face continued pressure unless U.S. economic data offers a strong upside surprise.

More Information in our Economic Calendar.