• Sat. Jul 20th, 2024

US Dollar loses momentum on increasing economic headwinds


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  • US Dollar price action is positive this Wednesday against all major peers. 
  • Another big batch of data, including US GDP data, could push the Greenback further down. 
  • The US Dollar Index gave way to 104.00 and might retrace even further to 103.00.

The US Dollar (USD) is losing its shine as the Greenback is no longer the king. Lower US Consumer Confidence data and the sharp decline in JOLTS Job Openings points to a firm dent in the staggering performance of the US economy since last year. With several data points starting to flash and signal distress, the tipping point could come in sooner than the US Federal Reserve presumes, and might need earlier interest-rate cuts than needed in order not to crash the US economy and engineer a soft landing.

More data is ahead to assess if the numbers of Tuesday were one-offs or confirm that the US economy is starting to crumble. Markets will mainly be focused on the second estimate of the US Gross Domestic Product that will come out later this Wednesday. Add into the mix the ADP monthly Employment Change, where traders will get a taste of the Nonfarm payrolls numbers due Friday.

Daily digest: US Dollar gains against major peers

  • The US economic calendar starts off at 11:00 GMT with the Mortgage Bankers Association (MBA) weekly Applications Index. Previous result was a 4.2% decline.
  • The monthly ADP employment change will be released at 12:15 GMT. Although there is no correlation with the official US Jobs number on Friday, it does create a sort of glance on what could come Friday. Previous numbers was 324K, and it is set to slide lower to 195K.
  • The second estimate of US Gross Domestic Product data will come out at 12:30 GMT. For the second quarter, the Price Index is expected to stay steady at 2.2%. The annualized GDP growth is also seen unchanged from preliminary estimates, which came at 2.4%. Apart from this, Wholesale Inventories index for July is to come out as well, expected to head from -0.5% to -0.4%.
  • The US data agenda is to round off this Wednesday with Pending Home Sales at 14:00 GMT for both monthly and yearly performances. The monthly reading is expected to decline 0.6% in July, swinging from a 0.3% increase a month earlier. The annual number was in June -15.6%, with no forecast for July.
  • Asian equity markets are mildly in the green with no real outliers to mention. There is a similar picture in Europe, where clearly traders are sitting on their hands awaiting further confirmation from the US economic numbers. US equity futures are trading marginally in the red and could still go either way.
  • The CME Group’s FedWatch Tool shows that markets are pricing in an 86.5% chance that the Federal Reserve will keep interest rates unchanged at its meeting in September. The 78% probability got quickly reassessed after the downbeat data from the JOLTS report.
  • The benchmark 10-year US Treasury bond yield trades at 4.13%, sharply sliding  as investors were going long US bonds and US equities.


US Dollar Index technical analysis: rally under pressure

The US Dollar is in good shape this Wednesday morning after the beating it took on Tuesday on the back of substantial shrinkage in the JOLTS jobs openings number. Still, the shiny Greenback is starting to fade a little bit and that is being translated with the US Dollar Index (DXY) sliding below 104.00. The overall summer rally for the DXY is still intact, though it is starting to get under pressure.

On the upside, 104.69, the high of May 31, comes into play as the level to beat. Once that level is broken and consolidated, look for a surge to 105.00, where 105.10 (the peak of March 15) is an ideal candidate for a double top. Should the Greenback be on a tear, expect a test at 105.88 – the 2023 peak from March 8.

On the downside, several floors are likely to prevent a steep decline in the DXY. The first one is the big figure at 104.00. Though seeing the current decline, that does not look strong enough to hold. Rather look for the 200-day Simple Moving Average (SMA) at 103.14. That is a much better candidate in order to catch some profit-taking pressure and reenter. In case it does not hold, the safety net at 102.33 comes into play, holding both the 55-day SMA and the 100-day SMA.

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