USD bears were stopped in its tracks as risk sentiment suffered a knock. Trump administration rolled out a memorandum telling a key government committee (Committee on Foreign Investment in the United States) to limit Chinese investment on tech, energy and other strategic American sectors. DXY was last seen at 106.65, OCBC's FX analysts Frances Cheung and Christopher Wong note.
"It also called for Mexican officials to place their own levies on Chinese imports. Additionally, US also proposed fees on Chinese-built ships entering US ports. It further proposed that the US government should review a 1984 tax deal with China that frees individuals and companies from double taxation. Re-escalation in US-China tensions can undermine sentiments, resulting in a slowdown of USD’s recent decline."
"The 25% tariff on Mexico and Canada comes into effect on 4 Mar while tariffs on all steel and aluminium imports comes into effect on 12 Mar. The imposition of tariffs on those dates can undermine sentiments and lead to spikes in the USD, unless these dates are pushed back again."
"Daily momentum is bearish while RSI rose from near oversold conditions. Next support at 105.50, 105.20 levels (50% fibo). Resistance at 107.50/80 levels (23.6% fibo, 21 DMA). Support at 106.30/40 levels (100 DMA, 38.2% fibo retracement of Oct low to Jan high). This week’s focus is on US core PCE price index (Fri). A softer print may weigh on the USD. That said, potential tariffs on Mexico and Canada with a 4 Mar deadline and risks of re- escalating US-China tensions may warrant some caution."
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