The US dollar rises ahead of two days of data-driven trading

• The US dollar is trading on the back foot, weakening against most major peers as traders focus on key US data.
• Markets rallied on Wednesday as Nvidia missed earnings estimates, benefiting the dollar.
• The US Dollar Index broke above 101.00, but cannot sustain this level.

The US dollar (USD) traded broadly flat on Thursday, easing somewhat against most of its peers, failing to extend Wednesday’s gains. The USD faces two days of a busy US economic calendar, with some data having the potential to change the market. Expect to see volatile moves unfold as markets will constantly switch between bets on a 25 basis point or 50 basis point rate cut in September, depending on which way it plays out economic data received. Federal Reserve (Fed) Jerome Powell did not commit to any size of rate cut or forward guidance in his Jackson Hole speech, so markets will have plenty of variables to speculate on.

On the US economic calendar front, this Thursday will offer a rough period in terms of volatility. In addition to weekly jobless claims, the second reading of US Gross Domestic Product (GDP) will be released for the second quarter. The personal consumption expenditure (PCE) number under that GDP umbrella will get a lot of attention ahead of Friday’s monthly PCE numbers.

Daily Market Reasons: Hold on tight

• Inflation data from both Germany and Spain showed an intensifying disinflation trend, with even some German provinces recording monthly price declines. This triggered a sharp move lower in the euro (EUR) against the US dollar (USD), erasing almost all of the gains made last week.
• At 12:30 GMT, a massive batch of data will be released:
  • Weekly jobless claims for the week ending August 23:
    • Initial claims are expected to remain flat at 232,000.
    • Continuing claims were previously at 1.863 million.
  • US Gross Domestic Product for the second quarter will have its second estimate, with economists expecting no significant revisions:
    • Overall GDP is expected to have grown at an annual rate of 2.8%, as previously estimated.
    • The core price component for personal consumption expenditures (PCE) is expected to stand at 2.6%, unchanged from the first reading. Core PCE is not expected to be revised from the previously reported 2.9% either.
    • The price index component of GDP was 2.3% in the first reading, with no forecasts available for the second reading.
  • Wholesale inventories for July are expected to rise 0.2%, the same increase as in June. The merchandise trade balance, meanwhile, is expected to expand slightly from $97.4 billion to $97.5 billion.
• At 14:00 GMT, pending home sales for July will come. Sales are expected to rise 0.4 percent, down from the 4.8 percent increase seen a month earlier.
• At around 7:30 p.m., comments are expected from Federal Reserve Bank of Atlanta President Raphael Bostic, who is giving a presentation and participating in a Q&A on the Federal Reserve and the U.S. economic outlook at the Scheller College of Business Management of Financial Institutions class from Georgia Tech.
• Shares are trading flat in Asia, looking for direction after markets flagged Nvidia’s earnings report as flawed. European and American stocks are trading steady, to minor losses.
• The CME Fedwatch tool shows a 65.5% chance of a 25 basis point (bps) interest rate cut by the Fed in September, compared to a 34.5% chance of a 50 basis point cut. Another 25 bps cut (if September is a 25 bps cut) is expected in November at 44.2%, while there is a 44.6% chance that rates will be 75 bps (25 bps + 50 bps ) below current levels and an 11.2% probability of rates being 100 (25 bps + 75 bps) basis points lower.
• The benchmark US 10-year yield is trading at 3.84%, not that far from this week’s peak near 3.87%.

US Dollar Index Technical Analysis: You Get What You Bid For

The US Dollar Index (DXY) could enter a period of difficult volatility over the next 48 hours with a massive data load hitting the markets. The fact that the DXY is set to make some saw-saw moves is because the Fed has not committed to the size of its initial rate cut and also has not clarified whether this is the start of a rate cut cycle or could yet end in one and that’s it. cut. Markets were euphoric last week and clearly dampened that cheery mood, with the DXY becoming the barometer of how markets anticipate the Fed’s next moves.

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. 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