Dollar Is Stubborn in Looking Up

The U.S. Dollar Index (DXY) is trading neutral at 106.61 points this week, with EURUSD slightly up by 0.12% to 1.04710. Technical oversold conditions for the Greenback have eased after last Wednesday’s sharp EURUSD drop of 0.88% to 1.04000, driven by hawkish remarks from multiple Federal Reserve (Fed) members. Following this move, the pair was primed for a rebound toward the 1.04700–1.05700 target zone.

On Friday, weaker-than-expected U.S. services sector business activity weighed on stocks and opened a path for a weaker Greenback. Over the weekend, Germany held parliamentary elections, where the conservative CDU/CSU bloc won, and the far-right AfD secured second place. Current Chancellor Olaf Scholz is out of the game, with Friedrich Merz likely to assume office. The EURUSD initially jumped 0.66% to 1.05280—its highest level since January 27—but failed to sustain those gains.

Meanwhile, U.S. President Donald Trump remained silent over the weekend following the weak business activity report but reiterated that tariffs on Canada and Mexico are set to take effect next week. In response, S&P 500 futures extended losses to 2.33%, while the U.S. Dollar strengthened, pushing EURUSD back into the 1.04600–1.04700 range.

Large investors made an unusual move last Wednesday, placing a significant $61.69 million bet on a stronger Dollar via the WisdomTree Bloomberg US Dollar Bullish Fund (USDU). Notably, this position was established around the 1.04300 level, suggesting they might currently be at a loss. Typically, such bets aim for at least a 2.0%–3.0% return, implying EURUSD could fall to 1.01000–1.02000, revisiting January lows. However, Trump’s unpredictability could disrupt these expectations.

Traders are now focused on the upcoming U.S. GDP report on Thursday and the Personal Consumption Expenditure (PCE) price index release on Friday. Market consensus suggests these readings could weigh on the Dollar. However, Nvidia’s (NVDA) Q4 2024 earnings report could provide support—if the report disappoints, an intensified S&P 500 correction may trigger a rapid Dollar recovery.

Technically, EURUSD remains in an upward formation with primary targets at 1.04700–1.05700. A move above 1.05700 is needed to extend the rally toward 1.09500–1.10500. At this stage, both upside and downside scenarios hold equal probability.