USD slips ahead of inauguration – Scotiabank

It’s inauguration day and Martin Luther King's Day — a federal holiday which means US markets are closed. The incoming president is reportedly set to sign 100 executive orders right out the gate and some of those are likely to address border security and tariffs. Will tariff action start off aggressively (25%?) and ease back as compliance emerges, Scotiabank's Chief FX Strategist Shaun Osborne notes.

US markets closed for MLK Day

“Or will tariffs start low and ramp up progressively to force the pace of negotiations. The positive price action in the USD since the outcome of the US presidential election suggests to me that markets have already factored in a — very roughly — 10-15% tariff regime being imposed on the US’ major trading partners, so somewhere in the middle of those two extremes which may mean profit-taking if its tariffs lite to start or more gains if it’s a sledgehammer approach.”

“The USD remains quite fully priced and long positioning is crowded which tilts risks towards some decent, corrective action in the USD in response to either a low or slow starting off point for tariffs—or if news on tariffs remains absent in the early days of Trump 2.0.”

“The USD has slipped a little in overnight trade and price action alone suggests the bull run may be tiring a bit; the DXY eased last week overall, for its first weekly loss since the start of December and the index is resting right on seven-week trend support at 108.95 this morning. A break below here may trigger a short-term correction at least in the USD’s recent gains.”