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Hello everyone, today Avatrade Aihua Foreign Exchange will bring you "[Aihua Ava Foreign Exchange Market Analysis]: Worries about the outlook of the US economy intensifies, and the US dollar index fluctuates downward." Hope it will be helpful to you! The original content is as follows:
On the Asian session on Tuesday, the US dollar index fluctuated downward, and investors are also paying attention to the U.S. Consumer Price Index data to be released on Wednesday and the producer price index to be released on Thursday. Traders have now fully digested the possibility of a U.S. rate cut in June. This trading day focuses on the opening of JOLTs jobs in the United States in January. In addition, U.S. and Ukrainian officials held talks in Saudi Arabia, and investors need to pay attention.
Analysis of major currencies
Dollar: As of press time, the US dollar index hovers around 103.78, the US dollar (USD) is under pressure, and DXY hovers around 103.95, striving to find support after a sharp decline last week. Fed Chairman Jerome Powell's latest remarks on Friday reassured the market that the central bank has no urgent need to adjust its policies at the moment, despite rising economic uncertainty. Meanwhile, Nasdaq faces significant market losses, down 3.3%, and investors remain cautious ahead of the release of key U.S. (US) inflation data. Market participants are preparing for the February Consumer Price Index (CPI), released on Wednesday, which is expected to provide key insights into inflation trends. Technically, the US dollar index (DXY) is stable below 104.00 and is consolidated after a sharp decline last week. The 20-day and 100-day simple moving averages (SMA) confirmed bearish crosses around 107.00, strengthening the negative trend. Relative Strength Index (RSI) is still close to oversold areas, suggesting the potential of a short-term reboundavatradescn.com. Meanwhile, moving average convergence/divergence (MACD) remains bearish, suggesting that there may be further downside risks unless buyers step in near support. If DXY fails to regain 104.50, the next support is expected to be around 103.30, which may determine whether a deeper decline will occur.
1. Japan's fourth quarter GDP was revised down, but overall it supported the expectation of interest rate hikes
The growth rate of Japan's economy in the fourth quarter was lower than the initial value, but it still grew for the third consecutive quarter. Data shows that the actual GDP in the last quarter of 2024 is converted intoThe annual rate grew by 2.2%, while the initial value announced in February was 2.8%. Japan's economy grew by 0.6% from the previous quarter. Capital expenditure increased by 0.6% from the previous quarter, with an initial value of 0.5%. Private consumption has been revised down from 0.1% to 0%. Although Japan's economic recovery is slower than previously predicted, the continued economic recovery may support the Bank of Japan's expectations of another rate hike in the near future. However, U.S. President Trump's economic policies, including raising tariffs, could disrupt corporate activities. Exports were the main driving force for Japan's economic growth in the fourth quarter, with foreign demand (i.e. exports minus imports) increasing by 0.7 percentage points.
2. The German Green Party opposes Merz's defense spending plan but retains the possibility of further negotiations
The German Green Party opposes a debt financing plan that can release hundreds of billions of euros of defense and infrastructure spending, meaning Prime Minister-elect Merz may not be able to obtain the two-thirds majority required to pass legislation in parliament. Green Party leadership has slammed the upcoming coalition government for excluding the Green Party from discussions and ignoring priorities such as climate action that it values. But the party has also opened the door to further negotiations, saying it will introduce legislation on its own. Katharina Droege, co-leader of the Green Party’s parliamentary caucus, said the party is ready to negotiate a “real” reform of the constitutional debt restrictions, but best when the new House of avatradescn.commons meets after March 25.
3. If the economy is in a recession, the Federal Reserve may start a series of rapid rate cuts in June. Institutional analysis pointed out that the Federal Reserve will not lower interest rates at next week's policy meeting, but if concerns about recession caused by the trade war are intensified and avatradescn.come true, a series of rapid rate cuts may begin in June. In the futures market, at least in the futures market, more and more contracts are betting that the Fed will cut interest rates by 25 basis points each in June, July and October, a trend that follows last weekend's remarks about the "transition period" as he imposes tariffs on multiple countries. U.S. stocks and U.S. Treasury yields also fell on Monday amid concerns that his remarks herald an impending recession. "Although it seems calm on the surface, labor or financial markets are beginning to fall even if the Fed is not able to assess tariffs and the impact of the Trump agenda on inflation, both labor or financial markets are beginning to fall apart, and (Feder policymakers) are increasingly concerned about the rising risk of the dual task and the ability to resist U.S. President Trump's pressure to cut interest rates," Tim Duy, chief U.S. economist at SGH Macro Advisors, wrote in a note. "The slow-responsive Fed will induce anger from the Trump administration." 4. Foreign media said that the United States will stop participating in future European military exercises
The NATO military exercise code-named "United Pirates-2025" was held in Norway from March 3 to March 14, and nine countries including Norway, Finland, and the United States participated. But just during the military exercise, a Swedish media quoted sources as saying that the Trump administration of the United States has notified its allies that the United States will stop participating in future military exercises in Europehabit. British media also disclosed that the Trump administration intends to withdraw about 35,000 US troops from Germany and deploy these forces to Eastern Europe.
5. Tariffs and federal government layoffs ignite concerns about recession. Credit risk in the United States rises
On Monday morning, relevant indicators showed that the U.S. credit risk reached its highest level this year, and investors showed a new round of concerns about the economic situation under tariffs and federal layoffs. As many investment-grade borrowers do not choose to issue bonds on Monday, the MarkitCDX North American Investment-grade Index expanded by as much as 2.06 basis points to 53.54 points, setting a new high since 2025. As credit risk climbs, the index rises. The MarkitCDX North America High-yield Index, which fell as credit risk increased, fell by 0.5 points to 106.4, a six-month low. Barclays strategists Bradley Rogoff and Dominique Toublan wrote in a Friday report that if the U.S. does experience a recession in 2025, it will be led by weak consumption. They believe that this possibility is not great, but it is no longer unimaginable. "We are increasingly aware that a large-scale consumption decline caused by factors such as tariff uncertainty, DOGE layoffs and weak stock markets are tail risks that cannot be ignored."
Institutional View
1. Deutsche Bank: The remarks of Becent and Trump over the weekend may signal changes to the market
Deutsche Bank analyst Jim Reid said that despite the relatively calm weekend, we did hear news from Becent and Trump, who seem to be telling us that they are ready to reposition the economy some of the pain. "We might see that this economy we inherited starts rolling a little bit. When we move from public spending to private spending, there is a natural adjustment. The market and the economy are already fascinated. We are already addicted to government spending, and it will be a withdrawal period." Meanwhile, Trump said, "There will be a transition period because we are doing very big. We are bringing wealth back to the United States. It's a big thing. What I'm going to do is build a strong country. You can't really observe the stock market." If on the surface, these quotes show that they are more painful than most people thought a few weeks ago.
2. Dutch International: The Canadian dollar faces further decline due to US tariffs
Analysts at Dutch International Group said in a report that although Trump will postpone the 25% tariff on many Canadian imports by a month, the Canadian dollar will still face further declines in the avatradescn.coming months. They said that even without a unified 25% tariff, Canadian goods are becoming a selective target for the United States, and reciprocal tariffs are imminent. They believe Canada should be "disproportionately affected" by tariffs because it exports to the United States are high. As the US dollar may rebound this summer, the US dollar will increase against the US dollar.Yuan may trade above 1.45 at that time.
3. Institution: U.S. inflation data is crucial to the dollar after Powell's speech
XTB analyst Kathleen Brooks said in a report that the U.S. inflation data released later this week will be the key to the dollar's performance, after Federal Reserve Chairman Powell said the central bank is not in a hurry to cut interest rates. Powell downplayed concerns about U.S. economic growth on Friday and suggested the Fed needs to see a weaker labor market and progress against inflation before cutting interest rates again. The housing index has proven to be a tricky point in core inflation, while rents are affected by California wildfires, Brooks said. He said, "In general, if the index does not improve, we may see a full recovery in the US dollar later this week."
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