The FX Trader: US dollar churns on tariff uncertainty.

The latest

US dollar goes full circle after Supreme Court rejects much of tariff legality. On Friday, the US Supreme Court ruled against the legality of those of Trump’s tariffs that were based on IEEPA (International Economic Emergency Powers Act of 1977). This triggered an immediate, if restrained slide in the US dollar on the notion that this would be bad for US fiscal stability as the treasury would have to repay the tariffs collected and wouldn’t enjoy future revenue from these tariffs. It was widely flagged, however, that Trump would likely move with some other tariff approach in such an event, which he promptly did late Friday and over the weekend with so-called Section 122 universal tariffs of 10% that were revised up to 15% on Sunday, and yet these will only last 150 days and Congress is unlikely to make them permanent as there enough Republican dissenters to block. On top of this we get the confusing news from those parsing through the Supreme Court decision and from Trump himself via a Truth social post that the decision could be seen as still offering President Trump considerable powers to outright block imports or assign quotas on them, just not to charge tariffs.  The US dollar found a floor in Monday’s Asian session and rallied for much of the European session as risk sentiment suggests. A strong close on the day and this keeps the US dollar on the comeback trail

State of the Union incoming. Trump will deliver the first State of the Union speech of his second term late Tuesday in the US. We can be sure that he will continue to tout protectionist moves, industrial policy initiatives and may state an aggressive case against Iran’s regime or on the “Donroe Doctrine”. 

Chart focus: EURUSD
EURUSD was kept in limbo late last week after the break of the 1.1766 pivot lows only triggered minor follow through lower to a 1.1742 low water mark. Later, the price action backed up on the announcement that the US Supreme Court had ruled that Trump’s IEEPA tariffs are illegal, and the pair rallied to 1.1830+ in Monday’s Asia session. Alas, Trump has been quick to announce new tariffs on a different, if temporary, basis to replace the overruled ones announced at the weekend. We’ve also seen follow-up posturing from US President Trump that the decision won’t stop his protectionist agenda and could even open up new protectionist avenues to pursue. This, together perhaps with weak risk sentiment Monday, sent EURUSD back lower. If the pair needs to erase today’s sell-off and close sharply back above 1.1850 or even higher to suggest that the up-trend remains viable. Otherwise today’s candle is taking on a rather bearish “shooting star” like appearance that will turn more bearish still if we close back toward the sub-1.1750 lows or lower. The outlook very pivotal here.