Trump Makes the Greenback Spin in Circles

The U.S. Dollar Index (DXY) is up 0.24% this week to 108.63 points, while the EURUSD has declined by 0.37% to 1.03270. U.S. President Donald Trump escalated trade tensions by imposing new tariffs on Canada, Mexico, and China last Saturday, with speculation mounting that the European Union could be next. The Dollar fluctuated amid conflicting rumours about Trump’s tariff plans, initially surging when reports suggested a delay until March 1, pushing EURUSD up 0.4% to 1.04340. However, when the news was officially refuted, the Euro fell to 1.03650 by Friday’s close.

As expected, Trump signed executive orders enforcing the tariffs, sending the Euro sharply down by 1.5% to 1.02090 at Monday’s open. Speculation of yet another postponement led to a full recovery of the Euro’s losses, and Trump ultimately suspended tariffs on Canada and Mexico for 30 days in exchange for concessions on border security and crime enforcement. Meanwhile, reports surfaced of an upcoming meeting between Trump and China’s President Xi Jinping. In response, China introduced a relatively modest $20 billion tariff on U.S. imports, compared to the $450 billion in levies imposed by Trump. This news strengthened the Chinese Yuan, while the S&P 500 declined by 0.8%.

Trump could escalate tensions further by raising tariffs again or keep the situation stable while negotiating a new trade deal. The former would push the Dollar even higher, while the latter could weigh on it. The market remains in a state of uncertainty, with major investors struggling to anticipate Trump’s next move. Large bets on the Dollar’s rise, placed through the WisdomTree Bloomberg US Dollar Bullish Fund (USDU), have been entirely unwound. The fund saw net outflows of $94.71 million last week—the largest in years—confirming that institutional traders had been bracing for a Dollar correction. Many closed their positions at 1.05330 with a loss, unaware of Trump’s tariff actions on Saturday.

This creates both chaos and opportunity. With institutional players lacking clear direction, technical signals may provide better guidance. The EURUSD has entered a downside formation and needs to break above 1.04000 to restore its upward momentum toward 1.04700–1.05700, which serves as a key resistance zone before a potential move to 1.09500–1.10500. The major catalyst for a shift could be January's Nonfarm Payrolls report on Friday—unless the U.S.-China negotiations yield a finalized trade agreement beforehand.