US Dollar steady with China-US relations clouds

• The US Dollar edges up slightly on Friday, with traders buying into President Trump’s comments. 
• Meanwhile, China came out pushing back against comments as trade talks are underway between the two countries. 
• The US Dollar Index remains capped below the 100.00 round level. 

The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, trades slightly higher and turns positive for the week on Friday. Traders are divided, though, after the US and China left contradictory comments on whether trade deal negotiations are taking place. United States (US) President Donald Trump said on Thursday that the US is talking to China, propping up the equity markets higher, and favoring the Greenback’s return. 

Additionally, citing sources familiar with the matter, Bloomberg reported on Friday that China is mulling suspending its 125% tariff on some US imports, including medical equipment, ethane and plane leasing. However, China's Foreign Ministry clarified that “China and the US are not having any consultations or negotiations on tariffs.” When asked about tariff exemptions on some US goods, the Foreign Ministry spokesperson said, “I'm not familiar with specifics, I refer you to competent authorities.”

On the economic calendar front, there is a very light calendar ahead. The Federal Reserve (Fed) has entered its blackout period ahead of its upcoming Federal Open Market Committee (FOMC) meeting on May 7. Meanwhile, this Friday, traders can look at the final April reading for the University of Michigan Consumer Sentiment numbers and inflation expectations. 

Daily digest market movers: Headline risks persist

• At 14:00 GMT, the University of Michigan will release its final reading for April.
• • The Consumer Sentiment Index is expected to remain unchanged at 50.8 as in the preliminary reading.
  • The 5-year Consumer Inflation Expectations  are expected to come in at 4.4%.
• Equities are carefully buying into the element that US President Trump might be right that China and the US are talking, while China feels the pain of elevated US import prices into China by local companies. Overall, green numbers with around 0.50% gains across Europe and in US futures.
• The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in May’s meeting stands at 6.1% against a 95.3% probability of no change. The June meeting still has around a 61.4% chance of a rate cut. 
• The US 10-year yields trade around 4.29%, looking for direction as markets face some knee-jerk reactions on the Trump comments. 

US Dollar Index Technical Analysis: Difficult to look from here

The US Dollar Index (DXY) might look bullish and set to jump higher once headlines emerge of a possible trade deal between China and the US, as rumours are building up now towards that possibility. However, a big downside risk comes with a potential peace deal between Russia and Ukraine, which would boost the Euro (EUR) and weigh on the DXY. So, there are a lot of moving parts that could outweigh the upside or downside for the US Dollar Index.

On the upside, the DXY’s first resistance comes in at 99.58,  where a false break occurred Wednesday and Thursday. Should the US Dollar extend recovery, look for 100.22, which supported the DXY in September 2024, with a break back above the 100.00 round level as a bullish signal of their return. A firm recovery would be a return to 101.90.

On the other hand, the 97.73 support could quickly be tested on any substantial bearish headline. Further below, a relatively thin technical support comes in at 96.94, before looking at the lower levels of this new price range. These would be at 95.25 and 94.56, meaning fresh lows not seen since 2022.

US Dollar Index: Daily Chart