- The index regains its feet after initially sliding on GDP miss.
- The US economy is seen contracting 0.9% QoQ in Q2.
- Weekly Claims rose more than expected by 256K.
The greenback comes under pressure following the release of the flash Q2 GDP figures but manages to find support and trade in the 106.50/60 band when tracked by the US Dollar Index (DXY).
US Dollar Index capped by 107.00
The greenback keeps the positive bias well in place following the post-GDP knee-jerk sell-off, as market participants continue to re-assess the recent interest rate hike by the Fed and comments from Chief Powell.
According to latest data the US economy is seen contracting 0.9% in the April-June period, charting a second consecutive quarter in the contraction territory, and thus slipping back into a technical recession.
Additional data saw Initial Claims rise by 256K in the week to July 23
What to look for around USD
The index comes under downside pressure in the wake of the Fed meeting on Wednesday and now flirts with the 106.00 region.
Despite the knee-jerk, the constructive view in the dollar appears bolstered by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.
On the flip side, market chatter of a potential US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.
Key events in the US this week: Flash Q2 GDP, Initial Claims (Thursday) – PCE Price Index, Personal Income, Personal Spending, Final Michigan Consumer Sentiment (Friday).
Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.
US Dollar Index relevant levels
Now, the index is up 0.19% on the day at 106.66 and a break above 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002). On the other hand, initial support emerges at 106.05 (weekly low July 28) followed by 103.67 (weekly low June 27) and finally 103.41 (weekly low June 16).
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