US dollar softens after July PPI figures, eyes on CPI

• The DXY slips below 103.00 as the US producer price index numbers disappoint.
• U.S. economic growth continues to trend upward, suggesting markets may be overestimating aggressive easing demands.
• CPI is now in focus for a clearer outlook on inflation.

On Tuesday, the US Dollar (USD), as measured by the US Dollar Index (DXY), showed a slight dip below the 103.00 level. This decline followed disappointing producer price index (PPI) numbers that fell short of analysts’ estimates.

Based on all economic data, the US economy continues to achieve above-trend growth. This suggests that market participants may be overestimating the need for aggressive monetary easing, as the Federal Reserve (Fed) may require more data before tapering.

Daily Market Reasons: Slight decline following disappointing PPI numbers

• The release of the producer price index (PPI) for US final demand showed an annual increase of 2.2% in July, less than market expectations of 2.3%.
• Annually adjusted core PPI also rose 2.4 percent, missing analysts’ estimate of a 2.7 percent increase.
• On a monthly basis, the PPI rose 0.1%, while the core PPI was unchanged.
• A 50 basis point cut is possible for now, but will depend entirely on data, with current odds around 55%. The market still expects 100 basis points of easing by the end of the year and a total of 175-200 basis points of tapering over the next 12 months.
• This rate path seems unlikely unless the US economy goes into a severe recession.

DXY Technical Outlook: Bearish trends continue amid weak buying efforts

There is no significant change in the technical outlook for DXY given moderate selling pressure. The momentum-based Relative Strength Index (RSI) is stable below the 50 level, indicating a sustained selling approach. The Moving Average Convergence Divergence (MACD) continues to turn negative as the red bars level off, demonstrating continued bearish activity despite the steady market movement on Tuesday.

The index’s position is below the 20-, 100-, and 200-day simple moving averages (SMA), indicating a predominantly bearish trend.

Support levels: 102.80, 102.50, 102.20

Resistance levels: 103.00, 103.50, 104.00