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On Monday (May 19), the US Dollar Index fell to 100.81, gold rebounded to $3,246, and Bitcoin rebounded to around $106,600 after a deep decline. Moody's downgraded the US credit rating, further putting downward pressure on the US dollar. US trade war panic returned, with US President Trump criticizing Walmart for raising prices due to tariffs.
Black Swan Event: Moody's Downgrades US Rating, Dollar Buying Pressure Weakens
Investors will still face challenges at the start of trading this week, but this time, the potential trigger for volatility may be growing concerns about US debt rather than tariffs.
On Monday, Asian financial markets reopened. Previously, Moody's rating agency announced late Friday that it would downgrade the US government's credit rating from Aaa to Aa1. Moody's rating lags behind its competitors, attributing the continuously expanding US budget deficit to presidents and congressmen across different administrations, noting there are almost no signs of narrowing.
Due to ongoing discussions in the US Congress about more unfunded tax cuts, and Trump's disruption of long-established business partnerships and renegotiation of trade agreements potentially slowing the economy, this downgrade could exacerbate Wall Street's concerns about the US sovereign bond market.
Some signs emerged on Monday, with the 10-year US Treasury yield rising to 4.49% on Friday in low trading volume, and the ETF tracking the S&P 500 index falling 0.6% after hours.
Max Gokhman, Deputy Chief Investment Officer at Franklin Templeton Investment Solutions, stated: "The downgrade of US Treasury ratings is not surprising under continuously generous, resource-poor fiscal policies that are likely to accelerate. As sovereign and institutional large investors gradually replace US Treasuries with other safe-haven assets, debt servicing costs will continue to rise. Unfortunately, this could create a dangerous bearish spiral in bond yields, further pressuring the US dollar and reducing the attractiveness of US stocks."
Wells Fargo strategists Michael Schumacher and Angelo Manolathos told clients in a report that they expect the 10-year and 30-year US Treasury yields to rise an additional 5-10 basis points due to Moody's downgrade.
A 10 basis point rise in the 30-year Treasury yield would be enough to push it above 5%, reaching its highest level since November 2023, approaching the peak when interest rates were at their highest since mid-2007.
Although rising yields typically support a currency, debt concerns could intensify doubts about the US dollar. The Bloomberg Dollar Index is near its April lows, with options traders' sentiment at its most pessimistic in five years.
Trump: Walmart Must Bear Tariffs, Warns Against Price Increases
Trump stated over the weekend that Walmart should bear its import tariffs and warned the retail giant not to raise prices on its products, while the company indicated it would increase prices due to taxation.
US Treasury Secretary Scott Bessent reiterated Trump's warning in an NBC interview on Sunday.
Trump posted on social media that Walmart should "stop trying to blame tariffs for price increases across the entire supply chain... Walmart and China should 'bear the tariffs' as people say, without charging any fees to their valued customers. I'll be watching, and so will your customers."
Just days before Trump's warning, Walmart warned in an earnings call that it would raise prices due to the impact of high US import tariffs, especially those targeting China.
Walmart Senior Vice President Stephanie Schiller Wissink said in last week's earnings call: "Given the scale of tariffs, even at the recently announced reduced levels, we cannot absorb all the pressure."
Other retailers, including shoe manufacturer Birkenstock, also announced product price increases due to Trump's tariffs, and Nintendo warned that its upcoming Switch 2 video game console might see a significant price increase in the US due to import tariffs.
The US and China announced last week a significant reduction in their intense trade war, with the US cutting tariffs on China from 145% to 30%, and China reducing tariffs on the US from 125% to 10%, effective for at least the next 90 days.
Bitcoin Technical Analysis
CoinTelegraph noted that Bitcoin remains within a certain range, but bulls are trying to overcome the resistance level at $105,820.
Both moving averages are trending upward, and the Relative Strength Index (RSI) is in the overbought area, indicating bull dominance. Breaking and closing above $105,820 would increase the possibility of retesting the $109,588 level.
Bears will try to defend the $109,588 resistance, but if bulls gain the upper hand, Bitcoin could surge to $130,000.
Alternatively, a significant drop below $100,000 would indicate bear dominance. This could prompt some short-term bulls to take profits, driving the currency pair down to the 50-day simple moving average at $91,447.
Bitcoin has broken through the symmetrical triangle pattern on the 4-hour chart, indicating bull dominance. Resistance is at $105,820, but likely to be broken. If broken, Bitcoin could move towards the historical high of $109,588, and then further approach the pattern target of $110,922.
Sellers may have other plans and try to pull the price back into the triangle. If this happens, aggressive bulls might get trapped, pulling the price up to $100,000. If that level is also breached, the decline could extend to the target price of $95,616.
