US Dollar faces choppy trade as policy outlook and tariffs fuel caution

• The US Dollar Index fluctuates around the mid-104s in Tuesday's session, easing from earlier strength.
• Optimism around reduced tariffs fades as mixed Fed comments muddy interest rate expectations.
• Momentum improves, but key moving averages still flash warning signs near major resistance zones.

The US Dollar Index (DXY) is experiencing mixed performance on Tuesday, trading around the middle of the 104.00 zone. Earlier in the day, the Greenback found support on stronger services activity and signs that proposed tariffs may be more targeted than feared.

However, uncertainty returned as new headlines from US policymakers tempered the optimism. The evolving rhetoric on inflation and trade created a back-and-forth movement in the DXY, now grappling with nearby resistance. From a technical standpoint, the Moving Average Convergence Divergence (MACD) prints a mild buy signal, while the Relative Strength Index (RSI) is neutral. Despite improving momentum, key Simple Moving Averages (SMAs) suggest the broader setup still leans bearish.

Daily digest market movers: Sentiment weighs on US Dollar after earlier tariff optimism

• The DXY trades in a tight range around the mid-104s, struggling to sustain upside after testing higher early Tuesday.
• President Trump hinted at exemptions for certain countries from April tariffs, raising hopes of limited global trade fallout.
• Trump also reaffirmed upcoming tariffs on aluminum, autos and pharmaceuticals, keeping markets alert for trade-related volatility.
• Fed Governor Adriana Kugler flagged fresh inflation pressures, noting worrying trends in select goods categories.
• The New York Fed's John Williams said both firms and households are navigating deep uncertainty about economic prospects.
• Despite neutral tones from both Fed officials, traders see inflation fears potentially slowing the pace of rate cuts. This Friday's Core PCE data remains the key event with markets closely watching the Fed's preferred inflation indicator.

Technical analysis: DXY hesitates below key barriers despite improving momentum

The US Dollar Index trades with caution near the 104.00 handle, reflecting a balance between softening sentiment and residual optimism from Monday's gains. The MACD currently prints a mild buy signal at -0.774, supported by a positive 10-day momentum reading. Meanwhile, the Relative Strength Index (RSI) sits at a neutral 40.20, suggesting the pair is not oversold but lacking strong bullish conviction. The combined RSI/Stochastic indicator also reflects hesitation, reading just above 96.

Despite these hints of recovery, the broader outlook remains under pressure. The 20-day, 100-day and 200-day Simple Moving Averages (SMAs) -- at 104.53, 106.74, and 104.93 respectively -- continue to trend lower. The 30-day Exponential Moving Averages (EMAs) and SMAs (both above 105.00) reinforce a heavy overhead zone.

On the downside, support is seen at 104.02 and 103.76, while resistance lies around 104.30, 104.53 and 104.54. The index may need a strong macro catalyst to break free from this congested range.