In the first few weeks of President Trump's tenure, the global economy is already feeling the tremors of his administration's potential policy shifts. With the European Union possibly becoming Trump's next target for tariffs, financial markets are bracing for uncertainty. Meanwhile, Trump's leverage over China seems diminished compared to the initial trade war. Traders are closely monitoring several key economic indicators as they reassess the Federal Reserve's rate path amid these geopolitical challenges.
The Relative Strength Index (RSI), a key technical indicator, has slipped below 50, signaling a potential shift in market momentum. Additionally, the index has fallen beneath the 20-day Simple Moving Average (SMA) at 108.50, suggesting further declines may be on the horizon. Market analysts are keeping a watchful eye on the psychological support level at 107.00, as the DXY's weak price action lingers around the 107.35 support mark.
Recent economic data releases have painted a mixed picture for the US economy. The ISM Services PMI fell short of expectations, indicating weaker-than-anticipated growth in the service sector. In contrast, the S&P Global PMI data offered a glimmer of hope with minor upward revisions for January. The Services PMI registered at 52.9, slightly above the expected 52.8, while the Composite PMI rose to 52.7 from a previous reading of 52.4.
Traders are also preparing for the upcoming Nonfarm Payrolls report for January, which is anticipated to deliver a weak result. This looming data release has heightened concerns about the Fed's future monetary policy decisions. The Fed funds rate, which dictates the overnight lending rate between US banks, remains a focal point for market participants.
The Fed Sentiment Index has cooled from its previous high of 130.00, aligning with the weaker ISM data. This cooling sentiment reflects growing uncertainty regarding the trajectory of US economic growth and inflationary pressures. However, there has been a notable rebound in the US 10-year yield, which is currently hovering around 4.40% after touching a yearly low.
As the global economy navigates these complexities, traders and investors remain vigilant in their analysis of economic indicators and geopolitical developments. The interplay between President Trump's policies, Federal Reserve decisions, and evolving market dynamics will continue to shape the economic landscape in the coming weeks.