- DXY reverses part of the pullback, tests 96.70.
- USD weaker in the wake of FOMC meeting.
- Philly Fed index came in well below estimates.
The greenback, in terms of the US Dollar Index (DXY), remains well on the defensive albeit managing to rebound from daily lows in the 96.60/55 band.
USD Dollar Index supported at the 200-day SMA
The index appears to have met dip-buyers in the vicinity of 96.50, an important area of contention where converge the critical 200-day SMA and the multi-month support line.
The buck is bouncing off lows despite the key Philly Fed manufacturing gauge came in at 0.3 for the current moth, well below estimates and lower than May’s 16.6. further data saw Initial Claims at 216K WoW, bettering consensus and taking the 4-Week Average to 218.75K from 217.75K.
Additional data noted the Current Account deficit shrunk to $130.0 billion during the January-March period, albeit coming in below forecasts.
Despite rate cuts are now a palpable option - with the occurrence of such a move in July gaining some momentum – the case for a weaker greenback in the near-to-medium term looks less clear against the backdrop of the generalized twist to a looser stance from the Fed’s peers in the G-10 space and the so far outperformance of the US fundamentals vs. the majority of developed economies.
What to look for around USD
The Federal Reserve is not ‘patient’ anymore, and rate cuts have already emerged on the horizon (likely to be delivered at the September and/or December meeting), while an ‘insurance cut’ could come as early as July. Compared with other central banks, the Fed has more room to manoeuvre in case it goes ‘full accommodative’ in the next months (due to the hiking cycle that started in 2015). If we add that the US economy is healthier than its overseas peers, the greenback’s status of ‘global reserve currency’ and its safe haven appeal, further weakness in the buck is far from a done deal.
US Dollar Index relevant levels
At the moment, the pair is retreating 0.57% at 96.66 and a breach of 96.46 (low Jun.7) would open the door for 96.04 (50% Fibo of the 2017-2018 drop) and then 95.82 (low Feb.28). On the other hand, the next up barrier emerges at 97.80 (monthly high Jun.3) seconded by 97.87 (61.8% Fibo of the 2017-2018 drop) and finally 98.37 (2019 high May 27).
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