The US dollar is gaining in value in the US session despite further softening of data

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  • The US dollar underwent a powerful correction on Wednesday following the US CPI release, which pushed the narrative back towards disinflation.
  • Thursday’s data isn’t much facilitate, as the number of people continuing to be unemployed this week rose to nearly 1.8 million.
  • The US Dollar Index is flirting with a break of 104.00 down.

The U.S. dollar (USD) maintained its modest gain on Thursday following a significant depreciation after the latest Consumer Price Index (CPI) showed a return to a disinflationary trend in April. The pieces of the puzzle are starting to fall into place with the latest data showing some easing on all fronts of the economy, and a lower CPI was the icing on the cake. Markets reacted to the evidence of falling inflation by popping the champagne bottle, with the S&P 500 index hitting modern all-time highs.

But Federal Reserve Bank of Chicago President Austan Goolsbee and Federal Reserve Bank of Minneapolis President Neel Kashkari called for keeping interest rates steady for an extended period of time, warning that market expectations for interest rate cuts may swing too far.

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On the economic side, the weekly Initial Jobless Claims report disappeared, as did the Philadelphia Fed Manufacturing Survey for May. U.S. industrial production did not compare well with Europe and Japan. Where both countries are seeing growth in industrial production, in the US it is down to 0% and flirting with decline.

Daily summary of entities operating on the market: Industrial production is at a standstill

  • Thursday started with a portion of data on housing, employment and prices:
    • The number of building permits increased from 1.467 million to 1.440 million in March.
    • The number of housing starts increased from 1.287 million to 1.360 million.
    • Weekly unemployment benefits claim was mixed once:
      • Jobless claims rose to 222,000, down from 232,000 the previous week.
      • Continuing claims rose to 1.794 million from 1.781 million last week.
    • There will also be an import/export price index for April.
    • The Philadelphia Fed Manufacturing Survey for May dropped from 15.5 to a modest 4.5
  • Industrial production and capacity utilization reached 78.4% compared to 78.5% previously. So nothing in this regard, although industrial production stopped at 0% last month compared to 0.1%.
  • Markets can digest all of the above data before a whole bunch of Fed officials take the stage:
    • Federal Reserve Vice Chairman for Oversight Michael Barr will testify before the U.S. Senate Banking Committee.
    • Federal Reserve Bank of Philadelphia President Patrick Harker will speak on the economic impact of higher education and health care.
    • Federal Reserve Bank of Cleveland President Loretta Mester will attend a luncheon at the Wayne Economic Development Council.
    • Federal Reserve Bank of Atlanta President Raphael Bostic participates in a moderated conversation on the U.S. economic outlook during an event hosted by the Jacksonville Business Journal.
    • All speakers this Thursday are Federal Open Market Committee (FOMC) voters except the Fed’s Harker.
  • The World Economic Forum in Qatar began on Tuesday morning. Headlines from world leaders may appear throughout the week.
  • US stock futures begin to fluctuate just before the opening bell in the US, erasing earlier diminutive gains.
  • The CME Fedwatch Tool indicates a 91.6% probability that there will still be no change in the Federal Reserve’s federal funds rate in June. Rates for September have changed, with the tool showing a 51.4% chance that interest rates will be 25 basis points lower than current levels.
  • The benchmark 10-year US Treasury bond is trading around 4.35%, off this month’s low.

US Dollar Index Technical Analysis: Manufacturing and Industrial Production Are Suffering

The US Dollar Index (DXY) saw some vital support in its downward trajectory on Wednesday. While there will be some support, several levels of rejection may now emerge and trigger another edged sell-off. The key level to watch is 103.83, the 55-week plain moving average (SMA), as a break there would open the door for DXY to fall to 100.00.

The positive is the need to rebound several levels again after Wednesday’s powerful correction. The first is the 55-day SMA at 104.68 along with the key level at 104.60. The next step up will be the 105.12 and 105.52 levels, in case DXY has room to further rebound.

On the other hand, the 100-day SMA around 104.11 is the last factor that could support the decline. When this happens, a diminutive air pocket will be placed between 104.11 and 103.00. If the US dollar outflow continues, consider the March low of 102.35 and the January low of 100.61.

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