DXY Faces Barrage of US Data

U.S. DOLLAR TALKING POINTS & ANALYSIS

• US GDP leaves greenback shaky.
• Core PCE in focus later today and could dictate terms for the rest of 2023.
• DXY bulls seek out upside reversal.

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DOLLAR INDEX FUNDAMENTAL BACKDROP

The US dollar attempts to stop yesterday’s bleeding after US GDP missed expectations alongside a decline in core PCE prices. The stubborn jobless claims data was not enough to pushback against these factors and now places the greenback roughly 1.6% lower year-to-date. After the Fed’s dovish shift in tone, some Fed officials have tried to resist the extreme repricing in rate expectations as to the timing of the first cut. As it stands, money markets (refer to table below) forecast the possibility of a rate cut as soon as Q1 2024. This may be a bit too optimistic, leaving room for a risk to the upside for the USD.

IMPLED FED FUNDS FUTURES

Source: Refinitiv

That being said, projections for today’s core PCE index (Fed’s preferred measure of inflation) is lower and could extend the current narrative. Durable goods orders and Michigan consumer sentiment may tick higher but if inflation dips, I expect markets to place more emphasis on the inflation measure. Today marks the last day for 2023 that could set the tone for the final week trading week of the year as no other high impact economic data is due from a dollar point of view. Next week is likely to reflect a continuation of today’s data with minimal volatility across the board.

US ECONOMIC CALENDAR (GMT +02:00)

Source: DailyFX economic calendar

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TECHNICAL ANALYSIS

U.S. DOLLAR INDEX (DXY) DAILY CHART

Chart prepared by Warren Venketas, IG

Price action on the daily DXY chart above shows a breakout from the recent symmetrical triangle pattern (dashed black lines) with bears looking to push below the long-term trendline support zone (black)/101.74 swing low. This key inflection point could give us an indication as to short-term directional bias heading into 2024. The Relative Strength Index (RSI) suggest bullish/positive divergence that may keep USD bulls in play.

Resistance levels:

Support levels:

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