Fed to Hold Rates Amid Trade War Uncertainty—USD Traders Brace for Impact

Summary – USD Index (DXY)

• Current Price: ~105.80
• Trend: Sideways-to-Bullish
• Resistance: 106.15, 106.70
• Support: 105.40, 104.80

The U.S. Dollar Index remains steady ahead of this week's Fed meeting as traders weigh solid employment data against the inflationary threat of new tariffs. A hawkish hold could push DXY toward 106.15 resistance, while any dovish lean would expose the index to profit-taking and a possible retracement to 105.40 or lower.

Fundamental Factors Affecting USD

1. Fed to Hold Rates Amid Political Pressure and Trade War Risks
   • Despite President Trump's calls for lower rates, the Fed is expected to hold steady in its decision this week.
   • Strong job growth and persistent inflation allow the Fed to remain cautious and not signal immediate cuts.
2. Tariff Uncertainty Adds Inflation and Growth Risk
   • New U.S. trade policies and tariffs may lift inflation in the short term, complicating the Fed's outlook.
   • Economists warn that consumer prices could spike, putting low- and middle-income Americans under more pressure.
3. Markets Still Expect Rate Cuts— Just Not Yet
   • Investors now see the first cut in July, followed by 2–3 cuts by year-end, barring a stronger inflation surprise.
   • Any change in Fed guidance could shift expectations and fuel volatility in USD pairs.
4. Consumer Credit Cost Impacts
   • Even with a rate hold, credit card APRs remain above 20%, and mortgage, auto loan, and savings rates remain elevated.
   • Uncertainty has led banks to tighten lending standards, adding stress to consumers and the broader economy.

Key Takeaway for Traders

The Fed will likely pause this week, but forward guidance is key. If Powell sounds cautious about the impact of the trade war on inflation, the USD may strengthen. However, if the Fed hints at rate cuts this summer, expect broad USD softness—especially against high-yielding or commodity-linked currencies.

USDJPY – H4 Timeframe

When the market structure on the 4-hour timeframe chart of USDJPY shifted from bearish to bullish as a result of the higher being formed, we discovered that the momentum that yielded the break of the structure was also strong enough to break through a trendline resistance as well – signifying mounting bullish pressure. Therefore, the demand zone origin of the bullish impulse is being highlighted and will serve as the area of interest for a likely bullish continuation.

USDJPY – H3 Timeframe

From the price action on the USDJPY 3-hour timeframe chart, we discover an SBR pattern hidden at the base of the bearish impulse. The multiple bullish breaks of structure and the induced week from the failed mitigation all agree with a bullish sentiment.

Analyst's Expectations: 

Direction: Bullish

Target- 146.186

Invalidation- 139.469

CONCLUSION

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