DXY: Under pressure – OCBC

US Dollar (USD) continued to trade under pressure as recent US economic data (Chicago PMI, Dallas Fed manufacturing activity) disappointed overnight, while markets increasingly priced in expectations of Federal Reserve rate cuts. DXY traded heavy; last at 96.56 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Bearish momentum on daily chart intact

"Currently, the market is fully pricing in a rate cut in September, with a 20% chance of a cut as early as July. On the fiscal front, the Congressional Budget Office (CBO) has revised its estimate for the amended budget bill, projecting it will add $3.3 trillion to the national debt over the next decade, up from the previous $2.8 trillion estimate for the House version. This larger debt projection raises concerns about the medium-term trajectory of US debt and deficits, reinforcing the narrative to 'sell USD'."

"Historically, US-centric risks such as ballooning debt and deficits, a widening current account deficit, and expectations of Fed cuts have weighed heavily on the dollar. Notably, similar conditions contributed to significant USD declines of around 30% between 2002 and 2004, and over 20% during the 2007-2009 period. US centric risks, risk-on sentiment, signs of tentative progress on trade talks with US point to further downside in the USD."

"Yesterday, White House National Economic Council Director Kevin Hassett signalled that agreements with several governments would be announced after US Independence Day. Bearish momentum on daily chart intact while RSI fell to near oversold conditions. Support at 96.50, 96.20 levels. Resistance at 97.50/60 levels, 98.30 (21 DMA). Today brings ISM manufacturing, JOLTS job openings data."