The US Dollar Index (DXY), which tracks the US dollar against a basket of six major currencies, was trading flat around 108.00 at the time of writing on Thursday (30/1). All eyes are now on the European Central Bank (ECB), where a 25 basis point (bps) interest rate cut is expected. After a somewhat hawkish pause from the Federal Reserve (Fed), markets are keen to see if the ECB will comment on the US political situation with Donald Trump back in office.

That is something that Fed Chair Jerome Powell did not do. He refused to comment on any questions that referred to President Donald Trump. Some traders even saw the Fed's hawkish hold as a message to Trump that the central bank will continue to rely on data, not the White House. All this coupled with the release of preliminary US fourth-quarter Gross Domestic Product (GDP) on Thursday.

The US Dollar Index (DXY) went nowhere while US yields continued to suffer losses. The biggest concern for the market is US President Trump's pressure on the Fed, with his demands to lower interest rates and borrowing costs. After last night's Fed decision, things could get even more heated as Trump could start using more unconventional tools to influence the Fed, undermining its credibility.

The psychological level of 108.00 still needs to be recovered on a daily closing basis, which is proving to be a tough task. From there, 109.30 (July 14, 2022, high and rising trendline) is next in line to pare last week's losses. Further up, the next upside level to reach before moving up further remains at 110.79 (September 7, 2022, high).

On the downside, the 55-day Simple Moving Average (SMA) at 107.64 and the October 3, 2023 high of 107.35 act as double-digit supports for DXY prices. For now, that seems to be holding, although the Relative Strength Index (RSI) still has room to fall. Therefore, it is better to look for 106.52 or even 105.89 as a better level for US Dollar investors to get involved and trigger a reversal.(AL)

Source: FXstreet