US dollar hits snooze ahead of US house price data

• The US dollar is trading sideways against its major peers on Tuesday.
• Markets are returning to risk-on, picking up last Friday’s momentum as tensions in the Middle East ease somewhat.
• The US dollar index is trading sideways, just below 101.00.

The US dollar (USD) is trading mixed in the European session on Tuesday, halting the mild recovery seen on Monday, with only one pattern to remember on the chart. The US dollar is ahead of most major Asian currencies such as the Japanese yen (JPY) and the Korean won (KRW). Risk-on sentiment appears to have returned to markets – with shares in the green in Asia, Europe and US futures – as refuge flows recede amid an easing of hostilities in the Middle East.

On the US economic calendar front, the home price index for June will be the main event to watch. the second element will be the Consumer Confidence Index for August. After Monday’s stellar durable goods orders numbers, the consumer confidence index should also head higher.

Daily Market Reasons: Everything seems quiet

• The US session begins with the Redbook Index for the week ending August 23, which will be published at 12:55 GMT. The previous reading was 4.9%.
• The house price index will be released at 13:00 GMT. The previous figure showed that prices were unchanged, and a slight increase of 0.2% is expected for June.
• At 14:00 GMT, the Consumer Confidence Index for August will be released. the previous number was 100.3, and economists expect it to rise slightly to 100.9.
• Also at 14:00 GMT, the Richmond Fed manufacturing index for August will be released. An increase is expected, from -17 to -14.
• Stocks in Asia and Europe are generally at the top of the quotes. US futures take the positive tone and are up less than 0.5%.
• The CME Fedwatch tool shows a 71.5% chance of a 25 basis point (bps) interest rate cut by the Fed in September, compared to a 28.5% chance of a 50 basis point cut. Another 25 bps cut (if September is a 25 bps cut) is expected in November by 50.2%, while there is a 41.3% chance that rates will be 75 bps (25 bps + 50 bps ) below current levels and an 8.5% probability of rates being 100 (25 bps + 75 bps) basis points lower.
• The benchmark US 10-year yield is trading at 3.82%, a fresh weekly high.

US Dollar Index Technical Analysis: This is not a good sign

The US Dollar Index (DXY) saw a substantial move lower last week, breaking through several key support levels as markets priced in aggressive Fed rate cuts through November. Monday’s recovery was already off to a good start, given that markets may have overestimated how big and how many cuts the Fed will actually make. However, DXY hasn’t been able to recover that much, which means the incoming data will become critical. Any strong data could trigger a tipping point that could fuel a rally in the DXY if markets start to cut prices.

For a recovery, DXY has a long way to go. First, 101.90 is the level to claim. A steep 2% rally would be needed to bring the index to 103.18 from the current 101.00. A very high resistance level near 104.00 not only holds key technical value, but also carries the 200-day simple moving average (SMA) as the second heavyweight limiting price action.

On the downside, 100.62 (December 28 low) is trying to hold support, although it looks quite weak. Should it break, the July 14, 2023 low at 99.58 will be the ultimate level to watch. Once this level breaks, early 2023 levels approach 97.73.

US Dollar Index: Daily Chart