• The dollar is making up for intraday losses and is expected to return to green.
• Fed Chairman Jerome Powell surprised markets by expressing doubts about the December interest rate cut.
• The U.S. dollar index is back to a fresh yearly high since Thursday.

For the US dollar (USD), earlier declines will ease somewhat on Friday, with US retail sales seeing a powerful upward revision ahead of the vital US shopping season, with Thanksgiving, Black Friday and Christmas being the main events for consumers and the retail sector. The impact of this number should not be underestimated as the US Dollar Index (DXY) has recovered more than 0.50% of its intraday losses and will turn green during Friday’s trading session. Meanwhile, markets are witnessing geopolitical talks with German Chancellor Olaf Schultz, who discussed the war in Ukraine with President Vladimir Putin in their first contact in more than two years.

The USD is losing value even as investors quickly retreat from expectations of another interest rate cut by the US Federal Reserve (Fed) in December. The latest blow was dealt by Fed Chairman Jerome Powell, who in his Thursday speech cast doubt on the chances of a December rate cut, pointing out that the economy is doing great and the labor market looks fit. Stocks around the world are not digesting this message well as it ruins the chances of a Goldilocks scenario at the end of the year.

Daily summary of market players: retail in the US and Ukraine

• Thursday’s speech by Fed Chairman Jerome Powell was a surprise for the markets. While the Fed is believed to remain data-dependent, several traders and strategists indicate that the Fed may already be pricing in the Trump trade effect.
• Bloomberg reports that German Chancellor Olaf Schultz and Russian President Vladimir Putin will hold a telephone conversation next Friday.
• Boston Fed President Susan Collins said in an interview for the Wall Street Journal that a December interest rate cut is not yet certain, although she sees no signs of price pressure.
• U.S. retail sales for October were scheduled to be announced at 1:30 p.m. GMT. Total sales increased by 0.4%, exceeding the forecast of 0.3%. A positive surprise was the revision to 0.8% from 0.4% previously.
• Also at 13:30 GMT, New York Empire State Manufacturing’s production data for November was the icing on the cake, with its number breaking from contraction and rising to 31.2. This is a gigantic boost in expectations compared to -0.7 and the previous -11.9.
• Industrial production for October fell by 0.3%, in line with expectations. September data was revised down to -0.5% from -0.3% previously.
• Federal Reserve Bank of Boston President Susan Collins delivers the welcome address to the 68th Economic Conference hosted by the Boston Fed at 14:00 GMT.
• Federal Reserve Bank of New York President John Williams delivers opening remarks at the New York Fed Alumni event in New York, at approximately 18:15 GMT.
• Stock markets in Asia ended Friday quite mixed. Japanese shares ended higher on Friday, while Chinese indices fell at the close. US futures are falling, with the Nasdaq flirting with a 1% loss earlier in the day.
• The CME FedWatch Tool estimates the Fed’s next 25 basis point (bps) rate cut at its December 18 meeting at 58.7%. The chance of leaving rates unchanged is 41.3%. While the interest rate cuts scenario is the most likely, investors have significantly reduced some of their bets on interest rate cuts compared to a week ago.
• The US 10-year reference rate reaches 4.50% and is the highest level in six months.

US Dollar Index Technical Analysis: It didn’t take long

The US Dollar Index (DXY) will weaken slightly next Friday, although warnings should be issued as Powell’s comments are positive for the US dollar. The Fed is signaling that it will likely pause its rate cut cycle, while the European Central Bank (ECB), for example, will likely continue its series of interest rate cuts. This would widen the interest rate differential between the two countries and support the US dollar as a high-yielding currency relative to other currencies.

From this point on, after Thursday’s piercing rejection, the 107.00 round level remains in the price. A up-to-date yearly high of 107.07 has already been printed. The highest value in two years may be achieved if the level of 107.35 is broken.

On the other hand, there will be a up-to-date set of support live. The first support is 105.93, which is the closing level on Tuesday. Slightly lower, the key level of 105.53 (April 11 high) should avoid declines towards 104.00.

US Dollar Index: Daily Chart