The US Dollar (USD) continued its downward trend this week, struggling to regain momentum as mounting evidence of disinflation in the US economy strengthens market expectations for a September rate cut by the Federal Reserve (Fed). While Fed officials remain cautious and data-dependent, their upcoming comments and crucial inflation data releases could provide further clarity on the central bank’s policy trajectory.
Market Drivers: Inflation Data and Fed Speak in the Spotlight
- CPI Expectations: Thursday’s release of the Consumer Price Index (CPI) for June is a key event, with forecasts suggesting a further decline in headline inflation to 3.1% YoY. Core CPI is expected to hold steady at 3.4% YoY.
- Powell’s Testimony: Fed Chair Jerome Powell’s Semiannual Monetary Policy Report to Congress will be closely watched for any hints about the timing and magnitude of potential rate cuts.
- Rate Cut Probabilities: Market expectations for a rate cut in July remain low, but the odds for September are steadily climbing, reaching around 80%, according to the CME FedWatch Tool.
Technical Analysis: DXY Struggles Below 20-Day SMA, Support Levels in Sight
The US Dollar Index (DXY) is facing technical headwinds after falling below the 20-day Simple Moving Average (SMA) and experiencing a 0.80% decline last week. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) have also dipped into negative territory, indicating bearish momentum.
Key support levels to watch include the 104.70 zone, marked by the 200-day SMA, followed by the 104.50 and 104.30 levels. These areas could potentially halt the DXY’s slide if the selling pressure persists.
Key Takeaways:
- The US Dollar is weakening as markets anticipate a September rate cut by the Fed.
- Upcoming inflation data and Fed Chair Powell’s testimony will be crucial in determining the Dollar’s future direction.
- The technical outlook for the DXY is bearish, with key support levels to watch for potential further declines.
