Morning Note: Dollar Climbs on Trade Winds; BTC Soars; ECB's Dovish Tone

U.S. Dollar Strengthens as Trade Optimism Builds

The U.S. dollar was on track for a weekly gain against most major currencies, buoyed by easing expectations of imminent Federal Reserve rate cuts and optimism surrounding global trade. A newly signed U.S.-UK trade agreement, described as covering "general terms", modestly improves agricultural access for both countries and reduces U.S. tariffs on British car exports. However, the 10% baseline duty remains in place. The deal also raised hopes for progress in upcoming U.S.-China trade talks set to begin Saturday in Switzerland, keeping investors' attention firmly on international negotiations heading into the weekend.

In terms of monetary policy, central bank decisions this week were largely in line with expectations. The Bank of England delivered a rate cut, while the Federal Reserve, Norway Bank, and Sweden’s Bank all held rates steady. Notably, Fed Chair Jerome Powell's remarks underscored persistent uncertainty in the economic outlook, which dampened market expectations for a near-term rate reduction. As a result, the probability of a rate cut in June has declined sharply, from around 55% a week ago to just 17%.

(U.S. Dollar Index Daily Chart, Source: Trading View)
From a technical analysis perspective, the U.S. Dollar Index has been on a bearish trend since early February 2025, as evidenced by a series of lower highs and lower lows. Recently, it has rebounded with bullish momentum and closed above the order block at the 98.70 – 99.00 level. Currently, the bullish momentum may continue to drive the index higher, potentially leading to a retest of the resistance zone between 101.30 and 101.60.

MSTR Surges in Step with BTC Rally

Bitcoin surged above $100,000, potentially signalling a turning point for the broader crypto industry. Strategy, the largest corporate holder of Bitcoin, can now breathe a sigh of relief despite lingering bearish speculation. This shift may seem puzzling initially, as the company had faced intense scrutiny over its aggressive Bitcoin accumulation strategy. Critics had warned of potential forced liquidation if prices fell further. However, BTC’s steady rise has validated the firm's position, and Michael Saylor’s company has thrived in parallel. MSTR has gained nearly 50% since its March lows and is now outperforming both Bitcoin and leading tech stocks.

Several factors have contributed to Strategy’s strong rebound. While former President Trump's tariffs temporarily disrupted the crypto market, recent developments, including a U.S.-UK trade agreement, have sparked renewed optimism. Strategy continued its disciplined Bitcoin purchases during the downturn, demonstrating long-term conviction. Still, uncertainty persists. Market conditions remain highly volatile, with false rumours triggering sharp price movements in recent weeks. Although Bitcoin's $100,000 milestone is significant, it was largely driven by short-term sentiment, and the rally may prove fragile.

(Bitcoin Price Daily Chart, Source: Trading View)
From a technical analysis perspective, Bitcoin has been in a bullish trend since early April 2025, following a rebound from the support zone between 77,900 and 79,200. This uptrend is marked by higher highs and higher lows and is confirmed by a solid double-bottom candlestick pattern, which signals a bullish reversal. Strong bullish momentum has recently pushed the price above the order block at 98,500 – 100,000. This upward force may continue, potentially driving the price to retest the resistance zone between 106,600 and 108,600.

ECB Signals Easing, Fed Stays Cautious

On Thursday, European central banks diverged sharply from the Federal Reserve by signalling future policy easing, while the Fed held rates steady and offered little clarity on its next steps. Most major global central banks have already begun loosening monetary policy in response to waning inflation. This divergence highlights a shifting global dynamic, as the U.S., traditionally a policy leader, may now face rising inflation due to the broader economic impact of trade tensions.

The European Central Bank, which next meets in early June, is preparing for what could be its eighth rate cut in just over a year, citing near-target inflation and the negative growth effects of new tariffs. Meanwhile, the Fed’s latest communication acknowledged the conflicting risks of inflation and unemployment, suggesting policymakers are grappling with mixed signals. This uncertainty points to a potentially prolonged period before the Fed offers a clearer policy direction, leaving markets to navigate diverging global economic paths.

(EUR/USD Daily Chart, Source: Trading View)
From a technical analysis perspective, the EUR/USD currency pair has been in a bullish trend since mid-January 2025, as indicated by a pattern of higher highs and higher lows. Recently, the pair was rejected from the resistance zone between 1.1530 and 1.1570, pushing it downward. It is currently retesting the swap zone at 1.1180–1.1210. A drop below this level would suggest that bearish momentum has regained control and could potentially drive the pair even lower.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.