Forex overview. US Dollar Holds Gains but Recovery Risks Fading on Tariff Doubts – ForexNews.PRO
This morning, President Trump communicated via social media that reaching an agreement with Xi Jinping presents a challenge, as markets await further information regarding their anticipated discussion later in the week.
The US dollar may experience some upward movement, but these gains are likely to be short-lived. In other news, the Bank of Canada is widely expected to maintain its current stance, although we believe the decision is less certain than market expectations suggest.
USD: Dollar Recovers, Trade Developments and ISM Data in Focus
The US dollar demonstrated strength despite the late rise in Treasury yields, bolstered by robust JOLTS job openings data for April. However, the JOLTS figures contribute little to the broader employment landscape: the labor market remains tight, while a decrease in resignations indicates a potential slowdown in wage growth.
The dollar’s resurgence seems more attributable to market efforts to justify existing high-risk premiums, especially in the absence of new unfavorable developments concerning trade or Treasury matters.
Additionally, markets may be adopting a slightly more optimistic outlook on US-China trade relations as the Trump-Xi call approaches. Historically, direct discussions have alleviated trade pressures, and we anticipate a possible temporary appreciation of the dollar following the call.
Nevertheless, this might not initiate a sustained rally. Trump’s imposition of 50% tariffs on steel and aluminum is now in effect, and a conciliatory tone between Trump and Xi Jinping may not lead to substantial progress in negotiations. Trump mentioned on social media this morning that while he “likes” President Xi, he finds him “extremely difficult to negotiate with.” As of now, there is no indication that the call between the two leaders has taken place.
Today’s focus is on the US ISM services index, with consensus expectations of a modest increase to 52.0 from April’s 51.6, although recent weak manufacturing data may have moderated these expectations. The ADP payrolls report is also closely watched, with forecasts suggesting an increase from 62k to 114k, indicating a strong jobs report on Friday. The Fed’s Beige Book release this evening could also influence sentiment.
We advise caution against re-establishing short USD positions before the Trump-Xi call. Post-call, we anticipate renewed downward pressure on the dollar.
EUR: Remaining Below 1.140 for the Time Being
As predicted, EUR/USD appeared somewhat overvalued near 1.145, and the decline below 1.140 is likely due to short covering. The potential for positive news regarding US-China trade tensions this week suggests a quick return to Tuesday’s levels (above 1.1420) is unlikely, unless significant negative US data emerges today.
Yesterday’s eurozone inflation data increased the likelihood of a more dovish message from the ECB. In addition to headline inflation falling below the 2.0% target, core inflation declined significantly, from 2.7% to 2.3%. Our ECB Cheat Sheet suggests the overall message should be dovish, although increased references to the euro’s global potential may mitigate negative effects on EUR/USD.
Today’s eurozone economic calendar is relatively light, with the release of April industrial production and final PMIs for May. However, US and EU trade negotiators are meeting in Paris.
Our outlook on EUR/USD remains unchanged: we expect the pair to settle near 1.13 in the coming weeks, and short-term rallies are likely to lose momentum as they approach 1.150.
