US Dollar Predicts Second-Time Recovery in Very Faint US Calendar

The US dollar is gaining for the second day in a row this week.
The BoJ has been sending conflicting messages about its monetary policy.
The US dollar index exceeded 103.00 and continued to rise on Wednesday.

The US dollar (USD) is regaining strength as all asset classes begin to return to more normal levels. Equities are performing quite well and are stable, volatility is decreasing, and secure havens like the Japanese yen (JPY) and Swiss franc (CHF) are losing value against the US dollar. The Japanese yen, losing over 1.5% against the US dollar, is the biggest contributor to the recovery of the US dollar index (DXY).

On the economic front, a very airy day is coming, which should be good for markets to continue their recovery path. In the area of interest rates, the auction of the 10-year US Treasury bond may attract the most attention, as it is a significant benchmark rate. On Wednesday slow evening, data on changes in consumer credit in the United States (US) for June will be released.

Daily Market Movement Review: Empty Shell

Traders must have raised eyebrows in the Asian hours when comments from Bank of Japan (BoJ) member Shinichi Uchida said the BoJ would not raise interest rates if markets were unstable. That caused the yen to fall 1% against the US dollar in initial reaction.
At 11:00 GMT the Mortgage Bankers Association released its weekly Mortgage Application Index. The previous value was -3.9%, and this week the value is positive at 6.9%.
Dr Olli Rehn, Governor of the Bank of Finland and member of the Governing Council of the European Central Bank, said the ECB would be able to continue its cycle of interest rate cuts if and only if inflation starts to fall further.
At 17:00 GMT, the US Treasury will allocate the 10-year Note to the market. The previous interest rate was 4.276%, while the US 10-year Note is currently trading at around 3.90%, a significant discount.
U.S. consumer credit data for June is due at 19:00 GMT. It is expected to fall to $10 billion from $11.35 billion a month earlier.
Stock markets are on a roll, with both the Japanese Nikkei and Topix indices in the green. European and US stocks are up more than 1% on the day ahead of the US open.
The CME Fedwatch tool indicates a 63.5% chance of a 50 basis point (bps) rate cut by the Federal Reserve (Fed) in September. Another 25 bps cut is expected in November, a 55.5% chance, while that meeting is estimated to have a 17.5% chance of a 50 bps cut and a 27.0% chance of no cut.
The benchmark 10-year U.S. Treasury rate is 3.93%, and it has risen this week as investors move away from bonds and back into stocks.

US Dollar Index Technical Analysis: Interest Rate Difference Drives Dollar

The US Dollar Index (DXY) continues to rebound with some lend a hand from the Japanese Yen. Looking at this particular cross (USD/JPY), it’s clear that the Yen has gained too much, too quickly against the US Dollar. A complete reversal is not expected, although there could certainly be a larger rebound this week for the US Dollar, which could translate into a higher DXY rate by Friday.

A three-level bounce is already in play, with the first resistance being found at 103.18, a level held on Friday, although broken on Monday during the Asian hours, and tested on Wednesday. If DXY closes above this level, the next one is 104.00, which was support in June. If DXY manages to rebound above this level, the 200-day plain moving average (SMA) at 104.22 is the next resistance level to watch.

On the other hand, the oversold Relative Strength Index (RSI) on the daily chart should prevent more losses for DXY. Support nearby is the March 8 low at 102.35. Beyond this level, pressure will start building at 102.00 as a gigantic psychological value before testing 101.90, which was a key level in December 2023 and January 2024.

US Dollar Index: Daily Chart