Trump’s Tariff Policies Push Dollar Higher

• The dollar regained strength after Donald Trump said to post higher import tariffs on multiple countries.
• Gold extended losses after the dollar strengthened.
• Keep an eye on RBNZ’s interest rate decision, which is due tomorrow. 

Market Summary

The dollar surged to a recent high, recovering from yesterday's retreat, driven by President-elect Donald Trump's threats of 25% tariffs on Canada, China, and Mexico. These protectionist measures boosted dollar momentum but weighed heavily on the Canadian dollar. While Wall Street posted gains, concerns over tariffs on China could negatively impact Chinese equity indices, including the China A50 and Hang Seng.

In commodities, gold extended losses, sliding 3% as the stronger dollar and reduced safe-haven demand pressured prices. Oil prices also declined amid fears that Trump's policies may weaken global crude demand.

In forex, focus shifts to Japan's inflation data today, which could strengthen the yen, and the RBNZ's interest rate decision tomorrow, with an expected 50 bps rate cut likely to weigh on the Kiwi.

Current rate hike bets on 18th December Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (40.4%) VS -25 bps (59.6%) 

Market Movements

DOLLAR_INDX, H4

The Dollar Index edged lower, pressured by falling U.S. Treasury yields after Donald Trump named Wall Street veteran Scott Bessent as his Treasury Secretary pick. Market sentiment suggests Bessent may moderate aggressive trade and economic policy proposals, fueling expectations for a more dovish policy stance. Adding to this outlook, Chicago Fed President Austan Goolsbee projected further rate cuts to align with neutral economic conditions, contributing to lower yields and dampened dollar demand.

The Dollar Index is trading lower following the prior breakout below the previous support level. MACD has illustrated increasing bearish momentum, while RSI is at 50, suggesting the index might extend its losses since the RSI retreated sharply from overbought territory. 

Resistance level: 106.95, 107.80

Support level: 106.05, 105.15

XAU/USD, H4

Gold prices also experienced a sharp retreat as the improving geopolitical outlook reduced demand for safe-haven assets. The potential ceasefire between Israel and Hezbollah, coupled with Israel's anticipation of a truce decision within days, improved market risk sentiment. The decreased geopolitical uncertainty reduced gold’s appeal as a hedge against instability, leading to a pullback in prices. Investors are now focusing on the ongoing diplomatic developments to gauge further movements in the gold market.

Gold prices are trading lower while currently testing the support level. MACD has illustrated increasing bearish momentum, while RSI is at 38, suggesting the commodity might extend its losses after breakout since the RSI stays below the midline. 

Resistance level: 2660.00, 2705.00

Support level: 2605.00, 2555.00

GBP/USD，H4

The GBP/USD pair failed to breach its previous high and plunged in the last session, signaling a bearish outlook. If the pair breaks below its critical support at 1.2505, further downside may be expected. The pair's decline was primarily driven by a strengthening dollar, bolstered by President-elect Trump's proposed tariff policies targeting other countries.

The GBP/USD remains trading in an extreme bearish momentum, with the pair testing its support level at the 1.2505 mark. The RSI remains below the 50 level while the MACD is hovering below the zero level, suggesting that the pair remain trading with bearish momentum. 

Resistance level: 1.2625, 1.2700

Support level: 1.2505, 1.2407

EUR/USD，H4

The EUR/USD pair hovers near recent lows but has formed a higher-low pattern, signaling easing bearish momentum. Momentum indicators suggest a potential trend reversal. Traders should closely monitor Wednesday's U.S. PCE reading, which could be a key driver for the pair's movement.

EUR/USD failed to break above from its previous high, suggesting the pair remain trading in its bearish trajectory. The RSI has rebounded while the MACD edged higher, suggesting that the bearish momentum is easing. 

Resistance level: 1.0525, 1.0607

Support level: 1.0440, 1.0321

USD/JPY, H4

The USD/JPY is testing its support level at 153.65 mark and is forming a lower-high price pattern, suggesting a bearish bias for the pair; a break below from the support level shall be seen as a bearish signal for the pair. The Japanese CPI reading was released but came short which hindering the strength of the Yen. Traders are advised to monitor the PCE reading that is due tomorrow as it may have a direct impact on the pair’s price movement. 

The pair is currency trading in a lower-high price pattern and is poised at its critical support level. The RSI is hovering at below the 50 level while the MACD is breaking below the zero line, suggesting the pair's bearish momentum is forming. 

Resistance level: 157.30,  160.00

Support level:  151.20, 148.70 

Dow Jones, H4:

U.S. equities surged Monday, with the Dow Jones Industrial Average rising 1% to a record 44,736.57, while the S&P 500 and NASDAQ Composite both gained 0.30%. Investor optimism was fueled by President-elect Donald Trump's nomination of prominent investor Scott Bessent as Treasury Secretary, alleviating concerns over economic policies and reducing fears of a trade war due to his opposition to aggressive tariffs. Reports of a potential ceasefire between Israel and Hezbollah further boosted sentiment, easing geopolitical concerns.

The Dow is trading higher following the prior breakout above the previous resistance level. MACD has illustrated increasing bullish momentum. However, RSI is at 73, suggesting the index might enter overbought territory.  

Resistance level:  45295.00, 47150.00

Support level:  43840.00, 42815.00

USD/CAD H4:

The Canadian dollar tumbled during early Asian trading following Donald Trump's announcement of a 25% tariff on all Canadian imports starting January 20th. The proposed tariff, part of Trump's aggressive trade agenda, is anticipated to hinder Canada's economic growth and trade outlook. The heightened trade tensions prompted a sharp selloff in the Canadian dollar, with traders bracing for further volatility.

USD/CAD is trading higher following the prior breakout above the previous resistance level. MACD has illustrated increasing bullish momentum. However, RSI is at 81, suggesting the pair might enter overbought territory. 

Resistance level: 1.4145, 1.4200

Support level: 1.4100, 1.4065

CL OIL, H4

Crude oil prices retreated sharply as rising hopes for a ceasefire between Israel and Hezbollah eased concerns about potential supply disruptions. Reports suggest that Israel is on the verge of a ceasefire agreement with Hezbollah, following shuttle diplomacy efforts by a senior envoy from the outgoing Biden administration. The Israeli security cabinet is expected to meet on Tuesday to potentially approve the agreement. The prospect of easing geopolitical tensions in the region weighed on oil prices as fears of supply disruptions diminished.

Oil prices are trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish momentum, while RSI is at 40, suggesting the commodity might extend its losses since the RSI stays below the midline.

Resistance level: 69.95, 72.65

Support level: 66.90, 65.60