The US Dollar (USD) has softened during low-volume trading periods, losing ground after a better-than-expected US Nonfarm Payrolls report. The US Dollar Index (DXY) is steady, staying around 97.00 after touching a high of 97.42. Market players are balancing the strong job data against risks from US President Trump’s tariffs and financial concerns. The House recently approved a significant tax-and-spending bill that is likely to increase the budget deficit and impact the long-term stability of US finances.

The Tax And Spending Bill

This bill makes the 2017 tax cuts permanent, offers new tax breaks, and raises the debt ceiling by $5 trillion, adding an estimated $3.4 trillion to deficits over ten years. Partisan disagreements over the bill add uncertainty to the market. China and the US have tentatively agreed to lower tariffs on some products, while India has responded to US auto tariffs, which could disrupt global supply chains. The strong Nonfarm Payrolls data has led to lower expectations for a Federal Reserve rate cut in July. Technically, the US Dollar Index is bearish, as it has struggled to regain the 97.00 level, indicating weak momentum. Support and resistance levels are approximately 96.30 and 97.20, respectively. With the recent decline of the US Dollar, following a short spike from the positive Nonfarm Payrolls data, many are reevaluating their short-term strategies. Although Friday’s job report changed expectations for July’s Federal Reserve meeting, the Dollar’s upward momentum quickly faded. As trading volumes decline during the summer, positioning focuses more on timing than strong convictions.

Market Response And Strategy

The House’s approval of the new tax-and-spending bill introduces a new element to the market. This legislation makes key aspects of the 2017 tax cuts permanent and raises the debt ceiling by $5 trillion, which raises concerns about fiscal discipline over the long term. From a risk perspective, any assets linked to US yields may respond to these changes—this could happen gradually. Budget deficits are projected to grow by $3.4 trillion over the next decade, which may reduce confidence in Treasury issuance and dollar demand. While default risk isn’t an immediate concern, we could see slight shifts in spreads, especially for longer-term rates. In quieter trading conditions, temporary market disruptions may occur, creating opportunities for strategic entries or exits. On the global front, progress seems to be made between Washington and Beijing, though slowly, in reducing trade tensions. Recent compromises indicate both sides are trying to avoid further protectionist measures. However, retaliatory actions from countries like India complicate global trade forecasts. Companies involved in exports and imports, especially in the automotive sector, may need to adjust their strategies if volatility returns to commodity currencies or emerging market exchange rates. Technically, despite a brief rise, the Dollar Index has stalled near previous resistance points. Failing to break through 97.00 indicates a lack of strong upward momentum. Falling below this level could prompt a broader reassessment of market trends. Support at 96.30 is crucial—not as a turning point but because breaking it would signal a shift in trend analysis. Resistance remains at 97.20, which has repeatedly limited gains over the last two weeks. We are watching option flows for changes in rate hike expectations. Speculators who once anticipated two rate cuts this year appear to be adjusting their view. With the Federal Reserve emphasizing data dependency, interest rate derivatives now show narrower price ranges. As a result, short-term contracts may see more significant adjustments following even minor data surprises. Given the current low volatility, spreads may widen quickly if trading volumes rise. This highlights the importance of careful entry planning, especially if technical signals contradict overall market sentiment. Concerns about US fiscal policies and evolving global trade dynamics could lead to increased market volatility in the coming weeks. Until clearer signals emerge—especially from upcoming inflation data or a change in the Federal Reserve’s stance—we will remain flexible in our trading strategies and avoid speculative positions. Create your live VT Markets account and start trading now.

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