The US dollar closes the week gently, markets digest the cautious Fed

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  • Fed officials’ caution and solid growth in the second quarter limit the USD’s decline.
  • Markets continue to bet that the monetary easing cycle will begin in September.
  • If data continues to be feeble, the Fed may consider cutting interest rates in July.

The US Dollar Index (DXY) is currently trading at 104.50, maintaining a neutral stance. Strong overall economic growth in the second quarter, supported by the cautious stance of the Federal Reserve (Fed), provided a modest gain in the value of the US dollar at the end of the week.

Despite some signs of weakness, the U.S. economy continued to show powerful overall growth in the second quarter, which directly impacts the cautious stance taken by Fed officials. It seems that the reluctance to introduce interest rate cuts keeps the dollar on the market and limits the negative effects.

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Daily market update: DXY remains neutral ahead of the weekend, Fed remains cautious

  • April’s Consumer Price Index (CPI) and retail sales data, as well as an boost in weekly jobless claims, caused the U.S. dollar to decline early in the week.
  • Raphael Bostic, president of the Fed in Atlanta, speaks positively about the progress of inflation in April, but declares that the Fed is not prepared to reduce basic interest rates.
  • Loretta Mester, president of the Cleveland Fed, believes the monetary policy stance is appropriate as the data is reviewed. Thomas Barking of the Richmond Fed believes that current inflation rates still require meeting targets.
  • According to CME FedWatch Tool, markets are betting higher on the first interest rate cut in September.

DXY Technical Analysis: The DXY outlook remains negative despite flattening indicators

Indicators on the daily chart show uncertainty signals. Even though the relative strength index (RSI) remains negative, this does not fully confirm the presence of powerful sales dynamics. Similarly, the Moving Average Convergence Divergence (MACD) is flat with red bars, indicating a potential break in the aggressive bearish trend.

On the other hand, basic moving averages (SMAs) paint a contrasting picture. The DXY index, after falling and then rebounding at the 100-day SMA, remains below the 20-day SMA. This suggests that the bears were temporarily holding the position. However, persistence above the 100- and 200-day SMAs indicates that bulls are not completely out of the picture.

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