Dollar Is Ready for another Correction

The U.S. Dollar Index (DXY) is rising by 0.18% to 106.91 points this week, while EURUSD is down by 0.33% to 1.04560. The dollar is recovering after last week’s sharp decline, when it lost 1.60% to the euro, pushing EURUSD to 1.05110—the highest level since January 27. This drop was triggered by U.S. President Donald Trump’s tariff announcements targeting Colombia, Canada, Mexico, China, and steel and aluminium imports into the U.S.

Currently, EURUSD appears overbought, and a corrective move to the 1.03800–1.04400 range could relieve this tension. Further price action will largely depend on U.S.-Russia talks in Saudi Arabia and Trump’s evolving stance on economic policies. Last week, the president countered inflation concerns, which should have weakened the dollar, by pushing for further interest rate cuts and signaling a reassessment of U.S. tariffs. His unexpected interventions caused sharp swings in the currency market, with EURUSD first plunging to 1.03150 before surging again.

Key upcoming events include the release of FOMC Minutes on Wednesday and PMI indexes on Friday, both of which could support the Dollar. Fed officials continue to issue hawkish statements, reinforcing the Greenback’s strength. However, Trump remains a wildcard, with his comments on Tuesday potentially influencing market sentiment. If peace talks yield positive developments, the dollar may weaken against major currencies.

Institutional investors are in a wait-and-see mode. The WisdomTree Bloomberg US Dollar Bullish Fund (USDU) reported neutral flows last week, suggesting investors are looking for clearer signals before taking positions.

From a technical perspective, EURUSD remains biased to the upside. The pair has reached its primary targets but must break above 1.05700 to extend gains towards 1.09500–1.10500. A deeper correction into the 1.03800–1.04400 range could serve as a launchpad for the next leg higher.