Week Ahead: Dollar set for more pain?

• FXTM’s USDInd on track for worst week since November 2022
• USDInd ↓ 3.6% MTD, Dollar weakens against all G10 YTD
• US CPI + Key EU data + possible US government shutdown = volatility?
• Over past year US CPI triggered moves of ↑ 1.1% & ↓ 0.6%
• Technical levels: 106.0, 200-day SMA & 102.70

*Note: This report was written before the US NFP data was published*

In the latest twists and turns of Trump’s trade war, tariffs on many imports from Mexico and Canada have been delayed till April 2^nd.

These goods were covered by the North American trade agreement known as the USMCA. 

However, this news failed to lift sentiment with the back and forth on tariffs sapping risk appetite. 

Caution may reign ahead of the US jobs report today (Friday, March 7^th) and possibly the week ahead.

Still, a combination of economic and political forces could present fresh trading opportunities:

Saturday, 8^th March 

• Federal Reserve communications blackout

Sunday, 9^th March 

• CN50: China PPI, CPI 
• CAD: Canada’s Liberal Party elects new leader

Monday, 10^th March 

• China’s retaliatory tariffs US agricultural goods take effect
• GER40: Germany industrial production
• JP225: Japan current account

Tuesday, 11^th March 

• AUD: Australia consumer confidence
• JPY: Japan GDP, household spending, money stock
• MXN: Mexico international reserves

Wednesday, 12^th March 

• US deadline to impose 25% steel and aluminum tariffs on EU
• CAD: Canada rate decision
• JPY: Japan PPI
• ZAR: South Africa annual budget 
• USDInd: US February CPI

Thursday, 13^th March 

• EUR: Eurozone industrial production
• MXN: Mexico industrial production
• ZAR: South Africa manufacturing production
• USDInd: US PPI, initial jobless claims

Friday, 14^th March 

• GER40: Germany CPI
• NZD: New Zealand food prices, manufacturing PMI
• SPN35: Spain CPI
• UK100: UK industrial production
• USDInd: Deadline for avoiding US government shutdown, University of Michigan consumer sentiment

Our focus is on FXTM’s USDInd, which is on track for its biggest weekly decline since November 2022. 

The dollar has been slammed by concerns about the potential impacts of Trump’s tariffs on the US economy. It has depreciated against every single G10 currency year-to-date. 

A broadly stronger euro amid bets of defense spending fuelled the USDInd selloff, sending prices 3.5% lower this week. 

*Note: This chart was created before the US NFP data was published*

FXTM’s USDInd measures how the dollar performs against a basket of six different G10 currencies, including the Euro, British Pound, Japanese Yen, and Canadian dollar.

Here are 3 reasons why USDInd could see more volatility:

    1) US February CPI report

The February US Consumer Price Index (CPI) report on Wednesday, March 12^th may impact Fed rate cut bets. 

*Note: This inflation report covers the first full month of President Donald Trump’s second term.

• CPI year-on-year (February 2025 vs. February 2024) to cool 2.9% from 3.0% in the prior month.
• Core CPI year-on-year to cool 3.2% from 3.3% in the prior month.
• CPI month-on-month (February 2025 vs January 2025) to cool 0.3% from 0.5% in the prior month.
• Core CPI month-on-month to cool 0.3% from 0.4% in the prior month.

Signs of cooling price pressures may bolster expectations around lower US interest rates. 

Traders are currently pricing in a 54% probability of a 25 bp Fed cut by May with a move fully priced in by June. 

Over the past year, the US CPI report has triggered upside moves of as much as 1.1% or declines of 0.6% in a 6-hour window post-release.

    2) Key EU data 

It’s worth noting that the euro accounts for almost 60% of the USDInd weighting. 

So, economic data from Europe may trigger additional volatility. A stronger euro tends to push the USDInd lower and vice versa. 

Data from Europe’s largest economy, Germany will be in focus and could impact the euro. 

Note: The European Central Bank cut interest rates by 25bp in March and warned about trade war fears hitting Europe’s economy. 

Traders are currently pricing in a 63% probability of a 25 bp cut by April and 43% probability of another rate cut by July. 

• The USDInd could rebound if data from Europe reduces ECB cut bets and weakens the Euro. 
• Should data strengthen the euro, this could drag the USDInd lower.  

    3) Possible government shutdown

The United States faces a government shutdown deadline set to expire on March 14^th. 

This adds another element of uncertainty, potentially weighing on the dollar. Should this become a reality, confidence in the US economy could take a hit with an extended shutdown fuelling recession fears.

• A government shutdown could knock the USDInd lower. 
• A deal to avert the shutdown may offer some support to the USDInd.

    4) Technical forces

FXTM’s USDInd is under intense pressure on the daily charts, trading below the 200-day SMA. However, the Relative Strength Index has dipped below 30 – signalling that prices are oversold.

• Sustained weakness below the 200-day SMA, may send prices toward 102.70 and 101.50.
• A move back above 104.50 could trigger an incline toward the 200-day SMA at 105.00. A move beyond this point could see an incline back toward 106.20 and the 50-day SMA.