Dollar Stages Stunning Reversal After Trump Drops Greenland Tariff Threat
The U.S. Dollar is edging lower against a basket of currencies early Thursday after a stunning reversal of events the previous session may have sparked the start of a recovery rally.
The dollar had been in a well-supported trend line rally since December 24 when the trade was rudely interrupted by two-straight days of relentless selling. On Saturday, President Trump upped his desire to obtain Greenland by threatening several major European nations with 25% tariffs if they didn’t cooperate with his takeover plans.
At 04:51 GMT, DXY is trading 98.760, down 0.030 or -0.03%.
“Sell America” Movement Triggers Brutal Two-Day Collapse
The news drove the Europeans to “Sell America”, triggering huge breaks in U.S. equities, U.S. Treasuries and the U.S. Dollar. The index broke from Friday’s close at 99.375 to Tuesday’s low at 98.246. That low fell inside a long-term retracement zone at 98.307 to 97.814.
Trump’s Double Pivot Halts the Bleeding and Sparks Recovery
Early in the session on Wednesday, Trump stopped the selling when he said he would not use military force to take Greenland. Late in the session, he drove the index to a higher close when he announced he was dropping the tariff threat because he had obtained the framework for a Greenland deal.
200-Day Moving Average Now Critical for Bull Case
By the end of the session on Wednesday, the dollar index had pulled considerably away from the support zone that had stopped the selling on Tuesday and had closed back on the strong side of the 200-day moving average at 98.712. If buyers can build a support base at the 200-day moving average then this could create the momentum needed to overcome the 50-day moving average at 98.945. This would put the index in a position to challenge retracement zone resistance at 99.072 to 99.384.
Ultimately, the goal of this rally is to crossover to the strong side of the uptrend line at 99.355 today, putting the index once again in a bullish position.
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See all EUR/USD forecastsWill “Buy America” Return? It All Depends on Deal Details
In order to reverse this week’s sell-off, a lot of things have to go right, the most important is a shift back to “Buy America”. Whether this happens or not will be determined by how solid the framework for the Greenland deal is. If the details are revealed on Thursday and the response is positive, the index could take off to the upside. If the details get picked apart by dissenters then we could be looking at a volatile rangebound trade.
Brace for Whipsaw Action Until Greenland Deal Certainty Emerges
Economic data and Fed rate cut discussions have been set aside this week with all eyes now on when an actual deal will be signed. So brace yourself for a volatile whipsaw trade until certainty returns to the financial markets.
More Information in our Economic Calendar.
