USDIndex, H4
The narrow trade-weighted USDIndex is off by 0.2% at 94.33, earlier posting an eight-session low at 93.93. This is the 3rd consecutive session the Index has declined, extending the correction from the 11-month high that was posted last week at 95.53. EURUSD gains have been the biggest driver of the ebb in the Dollar. The release of the latest Chicago Fed activity index, which fell to a -0.15 reading in May, had little impact. The US Dollar has not been directionally consistent during the recent ratcheting up in trade tensions; it is now declining, but gained during previous bad-news phases.
The consensus among Forex market participants, however, is that the Dollar will weaken in the scenario that the trade war deepens and is prolonged. The news today that Harley-Davidson will shift some production of EU-bound motorcycles out of the U.S. due to the EU’s retaliatory tariffs, has been weighing on the Dollar and increased trade war concerns.
A recent analysis by TD Securities, for instance, highlighted that the Dollar declined by 15% following tariffs that were introduced by George W. Bush in 2002 and by Bill Clinton in 1995 (although other bearish factors were also in play during these periods). The principal Dollar vulnerability is the US twin deficits and the risk of capital flight out of US financial assets.
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Andria Pichidi
Market Analyst
HotForex
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