US Dollar Breakdown as Trade Wars Escalate: Eurozone and Australian Region Gain Strength

Overview of Major Currencies

• USD - Under Pressure: Trade tensions and policy uncertainty push the dollar toward 103.00 - 102.50 support levels.
• EUR - Strongest Rally Since 2015: Up 1.5% to $1.0789, driven by European defense spending and a technical breakout.
• GBP - Rising on Geopolitical Strength: UK's leadership in supporting Ukraine boosts confidence, keeping the pound bullish.
• AUD - Gaining Momentum: Staying above 0.63 - 0.64 suggests further upside potential.
• NZD - Following AUD’s Path: Outperforms, trading near 75% of its range, signaling bullish momentum.
• CAD - Volatile Amid Retaliation: Canada’s 25% tariffs on US goods create uncertainty for the loonie.
• CHF - Safe-Haven Demand: Despite bearish trends, CHF remains a strong safe-haven asset.

Tariffs and Their Impact on the Dollar

The US dollar continues to face downward pressure following a series of volatile geopolitical and economic decisions. The latest tariffs on Canada, Mexico, and China have triggered retaliatory actions, raising concerns on a global scale. Investors and analysts are closely watching the ripple effects across financial markets.

On Tuesday, March 5, the US officially imposed tariffs on key trading partners, leading to an immediate drop in the dollar. In response:

• China and Canada retaliated, further straining trade relations.
• Investors lost confidence in US economic stability, leading to shifts toward alternative safe-haven assets.

President Trump, in a speech, reaffirmed his stance: “They tariff us, we tariff them.” Additionally, he suggested Canada should be integrated into the US and proposed Denmark transfer control of Greenland to the US, adding further geopolitical uncertainties.

Market Reactions

US Bonds Pulling Back

Concerns over tariffs and the dollar’s declining appeal have led to a pullback in government bond yields, reflecting investor unease.

Volatility Index (VIX) on Fearful Levels

The VIX index, commonly referred to as the “fear gauge,” spiked above 20, signaling growing uncertainty among investors.

US Dollar at Risk of Further Weakness

From the previous post: USD Rally Explained Key Drivers & Outlook, suggested the dollar could continue its rally, but recent developments indicate otherwise:

• Price failed to hold above the Fair Value Gap (FVG).
• The 105.420 level has been breached, signaling possible further downside.
• Key downside targets: 103.00 - 102.50.

Foreign Currencies Strengthening Against the Dollar

AUD - Gaining Momentum

The AUD has shown strength after breaking above its equilibrium level. Key conditions for continued upside include:

1. Staying above premium levels.
2. Holding key support areas in the 0.63 - 0.64 range.
3. Sustaining moving average alignment in favor of buyers.

NZD - Following AUD’s Trend

NZD has outperformed, currently trading near the 75% level of its range.

Positive reactions at Fair Value Gaps support further upside potential.

AUDNZD: Lower Highs and Lower Lows

We are not seeing momentum in favor for the Aussie. If we are looking for longs, New Zealand Dollar will benefit more on the upside direction vs AUD.

Euro Surges Amid US Uncertainty

The euro has surged 1.5% to $1.0789, its largest three-day gain since 2015. Key factors supporting the euro include:

• Increased European defense spending following US aid cuts to Ukraine.
• Technical breakout, with liquidity targets at 1.08249 - 1.09372.
• Bullish scenarios suggest continued momentum, provided the pair remains above critical moving averages.

Potential Bullish Scenarios:

1. Continued Momentum to 1.08249 - 1.08724 level trading on micro breakouts at M15 - H1 timeframes.
2. Deep Pullback at 1.07404 - 1.07224

As long as we stay above the moving average 10, 20, 50, we are looking for a continued upside.

GBP - Hits New Highs

The UK, under Prime Minister Keir Starmer, is taking a leading role in forming a "coalition of the willing" to support Ukraine. This signals a major shift in European defense strategy, especially as the U.S. scales back aid under President Trump.

• The coalition includes France, Germany, Canada, and other EU nations, aiming to boost military aid and counter Russian aggression.
• The UK has pledged £1.6 billion ($2 billion) in air defense support, reinforcing its commitment.
• There’s growing European self-reliance, with the EU’s €800 billion "ReArm Europe" program pushing for stronger defenses.
• Starmer’s "boots on the ground" comment suggests a potential direct military presence—a bold stance that could redefine NATO’s role in Ukraine.

The GBP is in strong bullish momentum, with no signs of slowing down.

Key technical levels: Pullback at 1.28632 - 1.28430 with a potential breakout at 1.29081.

Potential Scenario:

1. Pullback at the 1.28632 - 1.28430 level.

• As price pulls back at that level, wait for a range at M15 - H1 level and trade the breakout.

2. 1.29081 Breakout

• Once price reaches this level, wait for a range breakout and stops behind the structure.

CAD: Pulls Back as Canada Retaliates

In response to President Donald Trump's implementation of 25% tariffs on Canadian goods, Canada has enacted retaliatory measures to protect its economic interests.

Canada's Retaliatory Actions:

• Imposition of Tariffs: Effective March 4, 2025, Canada imposed 25% tariffs on C$155 billion (approximately $107 billion) worth of U.S. imports.
• Scope of Tariffs: The targeted U.S. goods span various sectors, including agriculture, manufacturing, and consumer products.

Prime Minister Trudeau's Stance:

• Critique of U.S. Tariffs: Prime Minister Justin Trudeau criticized the U.S. tariffs, stating they would harm both American and Canadian economies by increasing inflation and risking jobs in the U.S.
• Defense of Canada's Position: Trudeau emphasized Canada's readiness to protect its interests while remaining open to cooperation with the U.S.

Economic and Political Implications:

• Market Reactions: The escalating trade tensions have led to declines in stock markets and concerns over potential price increases for essential goods. theaustralian.comau
• Global Trade Relations: The situation has strained relations between long-standing allies and raised fears of a broader global trade war, especially with similar U.S. actions affecting Mexico and China.

Canadian Dollar is still in a crossfire zone as retaliation between the 2 countries create uncertainties and increase risks.

Potential Approaches

1. Bullish Scenario

• Rebound inside the range
• Break of 50% of the range
• Break of the resistance of the box

1. Bearish Scenario

• Rebound at the broken support
• Bearish reaction at the previous support
• Break of 1.42984

CHF: Retains Bearish Outlook

Swiss on the other hand is still on a bearish move.

Swiss Franc Safe-Haven Demand: The Swiss franc continues to attract investors seeking safe-haven assets amid global economic uncertainties.

We are now below the moving average. For bearish continuation, a reaction at the Daily FVG could further trigger a downside move.

The US dollar is facing continued weakness due to economic and geopolitical uncertainty. Meanwhile, foreign currencies such as the EUR, GBP, AUD, and NZD are strengthening, supported by global policy shifts and technical breakouts.

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