The US dollar index continued rising in yesterday’s trading session around 0.30 percent, along with a pullback in North American equities. The main FX pair, the EUR/USD pair, fell around 0.40 percent in yesterday’s trading session, showing the US dollar’s strength. The volatility across different FX pairs is at historic lows. Such low volatility will eventually end with disruptive consequences. The timing is notoriously difficult to identify, but there are some apparent catalysts to keep an eye on.
There are talks about a possible trade deal between Trump and Xi in late March at Mar-a-Lago. Critical areas of negotiation remain, including whether the US would drop its existing tariffs against China or refrain from invoking a move to 25 percent tariffs, as well as whether any deal should be done with immediate effect or be staggered and made conditional on China meeting its obligations to open its market and enforce IP rights.
At the time of this writing, the US dollar index is trading at 96.81 and as long as it trades above 96.68, the US dollar index might try to test 97.37 in the following few days or hours, incurring another 0.50 percent increase. For example, the EUR/USD pair is trading at 1.1325 at the moment and it might test the 1.1300 handle if the strength in the US dollar continues.