US Dollar knocked out as US price pressure abates

The US Dollar (USD) has completely erased incured gains from past few days or even weeks against a big basket of other currencies. The shift in sentiment was already noticed during the European session as US bonds and the Greenback – both acting as safe havens – were losing interest as investors turned to equities. That move even picked up speed as the Produce Price Index (PPI) numbers for May came out lower and pointed to a further easing of the price pressures in the US, building a case for at least one pause by the Fed later today.

As mentioned already, the Producer Price Index (PPI) numbers acted as a cathalyst, making the US Dollar devalue against most of its peers and had the US Dollar Index (DXY) slide substantially lower after the core PPI for both the year and monthly period, coming in lower as expected. The yearly core PPI came in at 2.8% against 3.2% previous and 2.9% expected. The monthly overall PPI number came in at -0.3% against 0.2% previous month and -0.1% estimate. 

Daily digest: US Dollar in a predicament just before the Fed rate decision

• The countdown has started towards the Fed rate decision, with the official release at 18:00 GMT and the FOMC Press Conference by Fed Chairman Powell at 18:30 GMT. 
• Geopolitical comments from US Senior Staff member Kurt Campbell on China, where he mentions the US is for de-risking with China, not decoupling. A series of visits with China is expected with US Secretary Antony Blinken leading the team. 
• US Producer Price Index (PPI) numbers softed further with the monthly overall PPI at -0.3%, coming from 0.2%. The monthly core PPI remained unchanged at 0.2%. The yearly performances dropped with the overall coming in at 1.1%, coming from 2.3%. The yearly core PPI printed 2.8% against 3.2% previous. This underbuilds the case for a short pause from the Fed as it communicated to be data dependent. 
• Initial blip of economic data for this Wednesday came in the form of the MBA Mortgage Applications which came out at 7.2% against -1.4% previous last week. This ends a four-week losing streak.
• China's Ministry of Commerce (MOFCOM) came out with comment on the US blacklisting some entities, calling it 'classic economic coercion'. Urges to stop unreasonable pressure for Chinese firms. 
• Former US President Donald Trump has been indicted in a federal court for holding back official White House documents. He pleaded not guilty on all charges. 
• Equities are not losing steam on their winning streak. Another 33-year high for the Nikkei, while China tech is the biggest winner intraday. European indices are back in the green with the German DAX printing a new historic high and US equity futures are all trading at the highs.  
• The US Treasury had to pay a higher yield for sellings its 1-year and 30-year bonds on Tuesday. The auctions for the 30-year bond came in at 3.908%, higher than the market pricing of 3.741%. The 1-year bond yield got placed at 4.93% while 4.64% was trading in the market at that time. This shows less appetite for safe haven bonds from investors, confirming the rotation into riskier assets.
• The CME Group FedWatch Tool shows that markets are pricing in a 9% chance of Fed rate hike today, a 71% chance for a hike in July and a 77% chance of a hike for September. Markets have abandoned the idea that there will be interest-rate cuts this year. 
• The benchmark 10-year US Treasury bond yield trades at 3.78%, retreating a bti after hitting almost 3.83% at the peak. US bond yields moved higher on the back of Tuesday US inflation numbers,  after which investors sold their bond holdings to allocate more money into risk assets. Falling bond prices are inversely correlated to the bond yield. The lower the price, the higher yield that needs to be offered. 

US Dollar Index technical analysis: losses accelerate as the two-day FOMC meeting concludes

The US Dollar is in full retreat after the softer PPI numbers, with most currencies in the Dollar Index (DXY) are gaining traction against the Greenback. The 103.00 floor got broken in the aftermath of the PPI numbers earlier today. 

On the upside, 105.44 (200-day Simple Moving Average) still acts as a long-term price target to hit.,The next upside key level for the US Dollar Index is at 105.00 (psychological, static level), which acts as an intermediary element to cross the open space.

On the downside, to the 55-day SMA at 102.55 becomes the new price target to the downside. Chances are that should it get tested before the Fed rate decision, it will act as new floor and could trigger a small bounce back to the upside.