Dollar Index outlook: Limited recovery likely to precede fresh weakness as rate outlook weighs

US Dollar Index

The dollar index ticked lower in European trading on Thursday, after bounce from 8-month low (101.94, posted on Monday) started to lose traction.

Weak picture on daily chart (MA’s in bearish configuration / strong negative momentum) warn of limited recovery before bears regain control.

The dollar was hit by the recent strong rally of yen, which was the one of key factors of the latest drop, with outlook for the Fed action on interest rates, turning more dovish and expected to add pressure on the US currency.

The latest economic data signaled that the US economy is slowing and recession threats, narrowed space for the central bank’s action and resulted in sharp rise in bets for 50 basis cut in September (against initial expectations for 25 basis points rate cut) and even spreading rumors that the Fed would opt for emergency rate cut before the September meeting.

Partial stabilization of the situation in the markets eased tensions for now, but outlook remains darkened by all these factors.

Markets await release of US July inflation report (due next week) and the speech of Fed Chair Powell at the Jackson Hole symposium (due Aug 22/24) for more information.

Immediate support lays at 102.55, loss of which would further weaken near term structure, while lift above upper pivot at 13.24 would sideline downside risk.

Res: 103.24; 103.55; 103.64; 103.93.
Sup: 102.70; 102.55; 101.94; 101.75.