DOLLAR INDEX (DXY) RECOVERS AFTER TRUMP’S INAUGURATION

Fundamental View
Upcoming catalyst
Technical view

As markets adjust to the new U.S. administration, “a dawn of a new era," Dollar index (DXY) recovers after Trump’s inauguration. After experiencing a decline of over 1%, the index found support around 107.56 and is now trading at 108.40 as of 3:43 PM GMT+4 (Dubai time), marking a 0.61% increase.

President Trump's Second Term: Potential Impact on DXY Recovery
From a fundamental standpoint, President Trump's second administration is anticipated to have a significant impact on the U.S. economy, with a strong emphasis on key economic policies. This includes but not limited to his announcement of a 25% tariff on imports from Canada and Mexico, effective February 1, 2025, alongside maintaining existing tariffs on Chinese goods.
Additionally, his declaration of a "National Energy Emergency" highlights a push to expand oil drilling and deregulate the energy industry. This initiative aims to achieve energy independence and reduce costs but raises concerns about environmental impact and potential legal challenges.
            In terms of immigration, stricter enforcement and increased deportations are expected to affect labor markets, particularly in industries heavily dependent on immigrant workers. This could result in labor shortages and higher production costs.
While these policies aim to stimulate economic growth, they come with potential risks, such as inflationary pressures, trade conflicts, and labor market disruptions. The overall impact will depend on how effectively these policies are implemented and their reception both domestically and internationally.

UPCOMING CATALYST
On Thursday, January 23rd, the U.S. unemployment claims are scheduled for release at 5:30 AM GMT+4, followed by the crude oil inventory report at 8:00 PM. The next day, Friday, will feature the release of Manufacturing and Services PMIs at 6:45 PM, and to close the week, existing home sales and consumer sentiment reports will be released simultaneously at 7:00 PM. These data points have the potential to significantly influence market movements, underscoring the importance of cautious analysis and strategic decision-making.

TECHNICAL VIEW:

From a technical perspective, Dollar index (DXY) recovers after Trump’s inauguration. It’s previous losses on Monday the 20th strengthened major currency pairs such as EUR/USD, AUD/USD, and GBP/USD. Currently, the index is trading around 108.34, with 108.80 acting as a key resistance level. Given the upcoming data releases, a favorable outcome could propel the Dollar index (DXY) recovery above 108.80, with potential targets at 109.09, 109.44, and 109.81 in the coming week. However, a correction is still possible. Conversely, a negative reading could further weaken the dollar, with potential downside targets at 107.48, the psychological level of 107.00, and 106.56. Analysts suggest that breakouts in either direction are possible, depending on the data's impact.

Fig. 1 Tradingview US Dollar Index (DXY) H4.