DXY ; Bulls look tired – OCBC

FX markets received a jolt this morning as President-elect Trump said that he will impose 25% tariff on all products from Mexico and Canada and additional 10% tariff on goods from China. Taking a step back, knee jerk market reaction looked modest, partly due to how well-flagged the threat of tariff has been. Question is still about the timing of tariff implementation and by how much. And it remains uncertain if Trump referred to tariffs as bargaining chips to level the playing ground or unlock other agendas. DXY was last at 107.07, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Mild bullish momentum shows signs of fading

“Nonetheless, a combination of tariff threats, heightened geopolitical uncertainties, signs of slowing growth in other DM nations, reduction in fed cut expectation amid plausible return of us exceptionalism are some factors that may still keep USD broadly supported on dips, while Asian FX trade on the back foot in the interim. But our observation is that the USD momentum appears weary. Tariff fears saw a kneejerk reaction but lacked follow-through. Stretched USD valuation, technical signals and potential December seasonality effect (DXY fell in 8 out of the last 10 Decembers) are perhaps some considerations that may slow or even reverse USD’s momentum.”