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Dollar under pressure as trade tensions ease beyond strong U.S. data
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Hello everyone, today XM Forex will bring you "[XM Forex Platform]: Trade tensions ease more than strong US data, the dollar is under pressure". Hope this helps you! The original content is as follows:
In the Asian session on Friday, the U.S. dollar index fluctuated slightly, and the global foreign exchange market fluctuated significantly. The U.S. dollar fell slightly on Thursday as Trump eased his stance on Greenland, while the Australian dollar rose sharply due to strong employment data. Trump had previously threatened to impose tariffs on allies that resisted his Greenland intentions, causing market unease, but risk aversion has eased since his change of attitude.
Analysis of major currency trends
U.S. dollar: As of press time, the U.S. dollar index is hovering around 98.30. Strong U.S. GDP and employment data failed to boost the U.S. dollar, and the market maintains expectations of an interest rate cut by the Federal Reserve. The U.S. dollar has gained support recently, mainly due to the phased easing of geopolitical tensions. U.S. President Trump said that he would suspend tariffs on European countries that oppose his position on Greenland. This statement reduced market concerns about the escalation of trade friction between Europe and the United States. From a technical perspective, the U.S. dollar index has stabilized and rebounded after finding support near 98.50, and is currently in a short-term consolidation stage. The daily structure shows that the index is still running within the recent rebound channel, and the momentum indicator is in the neutral to strong area, indicating that bulls still have a certain initiative. The upper resistance level focuses on the 99.20-99.50 range. If it can effectively break through, it may open up room for further rebound; the lower level focuses on the 98.30 first-line support. Once it falls, the index may retest the previous low area. Overall, the U.S. dollar index is volatile in the short term, and directional choices need to be catalyzed by data.
Euro: As of press time, EUR/USD is hovering at 1.175EUR/USD rose more than 0.5% on Thursday near 1 as improving risk appetite drove dollar selling despite strong U.S. economic data. Technically, EUR/USD has turned slightly above neutral after rebounding at 1.1576, approaching the 200-day simple moving average (SMA) at 1.1590, which intensified the euro's rise above 1.1600 towards 1.1700. The relative strength index (RSI) shows bulls are building momentum. So, in the short term, they have the upper hand. For a bullish continuation, buyers must break above the December 24 high of 1.1807. Once broken, the next target would be 1.1850, followed by last year's cycle high of 1.1918. To achieve a bearish reversal, EUR/USD must break below 1.1700 and clear key support levels such as the 20-day, 50-day, and 100-day SMAs at 1.11693, 1.1663, and 1.1660 respectively. If broken, the bulls' last line of defense will be the 200-day SMA.


1. The Prime Minister of the Greenland Autonomous Government: Does not understand the content of the "agreement framework" and the issue of sovereignty is a "red line"
Jens-Frederik Nielsen, the Prime Minister of the Greenland Autonomous Government, said on the 22nd that the autonomous government does not understand the specific content of the so-called "agreement framework" by US President Trump, and that Greenland's sovereignty is an insurmountable "red line." Nielsen said at a press conference for international media held in Nuuk, the capital of Greenland, that he welcomed Trump's remarks the day before, but it was unclear what his so-called "agreement" or "deal" on Greenland contained. Nielsen stressed that NATO Secretary-General Rutte has no authority to representDenmark and Greenland negotiate with the United States. "We are willing to discuss many things, but the issue of sovereignty is a red line." When answering the question "Is Greenland safe now?" Nielsen said that until the 21st, the people of Greenland had been under tremendous pressure and could not rule out the possibility of the United States seizing this Danish autonomous territory by force. He reiterated that Greenland chose Denmark and the EU.
2. The Trump administration cancels and revises a total of US$83 billion in Department of Energy loan programs
The Trump administration said on Thursday that it is restructuring, revising or revoking approximately US$83 billion in financing provided by the US Department of Energy’s Green Bank after reviewing related transactions approved during the term of former President Joe Biden. The U.S. Department of Energy said that of the approximately $104 billion in loan debt approved by the previous administration, the Department’s Loan Program Office (now renamed the Office of Energy-led Financing) has canceled or is in the process of canceling nearly $30 billion in loans, and plans to revise another $53 billion in loans.
3. Japan’s House of Representatives will be dissolved today
According to the Japan Broadcasting Association (NHK), Japan’s 220th Ordinary Congress will convene today (January 23). The Takaichi Sanae government will decide to dissolve the House of Representatives at this morning’s cabinet meeting. It is expected that at the plenary meeting of the House of Representatives at 1 p.m. local time, the Speaker of the House of Representatives will read out the "Declaration of Dissolution" conveyed by the Chief Cabinet Secretary, and the House of Representatives will be formally dissolved.
4. The U.S. House of Representatives passed the fiscal year appropriation bill, avoiding further government shutdown
The U.S. House of Representatives passed the fiscal year 2026 appropriation package bill on Thursday, overcoming the demands of the Democratic Party and differences within the Republican Party. A mini-appropriation package containing three bills passed the House of Representatives with 341 votes in favor and 88 votes against. The program provides funding to the Departments of Defense, Transportation, Housing and Urban Development, Health and Human Services, Labor, Education and other related agencies. The most controversial measure - the Department of Homeland Security appropriations bill - passed the House on a separate vote, 220-207. The House will www.xmtraders.combine the four bills with a two-bill mini-appropriations package it passed last week and send the full package to the Senate. The Senate is expected to consider the bills after its recess next week and before the January 30 deadline. This would mark the first time new full-year funding levels have been approved for the entire federal government since former President Joe Biden signed the omnibus appropriations bill in March 2024.
5. The probability of Warsh being elected as the chairman of the Federal Reserve has increased, and his tendency to shrink the balance sheet has attracted market attention
Trump may announce the candidate for the new chairman of the Federal Reserve as early as next week. Former Fed governor Kevin Warsh is currently regarded as the most likely candidate. He has long been critical of the Fed's current policies. While investors are paying attention to whether the new chairman will push for interest rate cuts, they are also focusing more on how he will manage the Fed's $6.6 trillion balance sheet. The key difference is whether the central bank should maintain its currentAlthough the current scale of bond purchases is still large, liquidity will still be gradually withdrawn from the market. If Warsh is elected, his policy stance that favors shrinking the balance sheet may put pressure on key markets related to the daily lending activities of global financial institutions, triggering the risk of tightening financing conditions.
Institutional view
1. HSBC: The U.S. dollar may continue to lag behind
The U.S. dollar has experienced a difficult two weeks as Trump made a high-profile return with various political actions at the beginning of the new year. Especially in the past week, volatile geopolitical risks and attacks on the independence of the Federal Reserve have become the two main factors dragging down the dollar. HSBC pointed out that this may be just the beginning. The election campaign has begun, and the road ahead in 2026 will surely be full of more twists and turns. The uncertain side of U.S. policy (i.e., geopolitical risks) is a stark reminder of what emergencies may suddenly arise and affect the exchange rate. In addition, there is still a lot to be digested about who will serve as chairman of the Federal Reserve and how this will affect the FOMC's future monetary policy form. Although there are some scenarios that may push the dollar to rebound in the future. However, HSBC said this was not in the outlook, at least for now. Removing uncertainty and structural and cyclical drivers becoming increasingly bullish for the dollar; continued foreign purchases of U.S. assets, coupled with outperformance in U.S. equities and upside surprises in activity data, could see the dollar climb back up. But for now, the dollar should continue to lag.
2. ING: Inflation may reshape the Bank of Japan’s interest rate hike plan
Japan’s CPI data will be released before Friday’s interest rate decision. The data is expected to show a sharp decline in the inflation rate in December. Analysts at ING Bank said a fall in inflation could prompt the Bank of Japan to review its plans for future interest rate hikes. "Strong wage growth and government aid measures will keep core inflation above 2%. Once the Bank of Japan confirms that core inflation will continue to be above 2% and higher than the overall inflation rate, it is likely to take the next step sometime in the second half of 2026."
3. Strategist: The Bank of Japan may use wage growth and A weak yen is used to convey its stance
Frances Zhang, head of foreign exchange and interest rate strategy at Oversea-Chinese Banking Corporation in Singapore, wrote in a report: "If the Bank of Japan can more clearly express its expectations for a sharp increase in wages, this may mean that interest rates will be implemented earlier." She pointed out that they expect the Bank of Japan to raise interest rates by 25 basis points as early as March. Bank of Japan officials are likely to pay more attention to the impact of a weak yen on inflation. A clearer statement in this regard would be seen as a sign of a tough stance.
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