• The US dollar is gaining in value and markets are starting to describe the Fed meeting as hawkish.
• Powell kept his cards close to his chest by not committing to any interest rate path.
• The US Dollar Index is rising in this 30-day range between 104.00 and 105.50.

The US Dollar (USD) was trading in the green against most other currencies on Thursday, which kept the US Dollar Index (DXY) in the green near 105.00. The US dollar devaluation took place on Wednesday after disinflationary Consumer Price Index (CPI) data was partially erased by the US Federal Reserve’s (Fed) interest rate decision and its scatter chart. Members of the Federal Open Market Committee (FOMC) see reason for only one rate cut in 2024 and four in 2025, while markets expected two rate cuts this year.

Fed Chairman Powell left markets largely in the murky as he did not commit to any interest rate path. This means that markets will likely react to upcoming data, including the Producer Price Index (PPI) along with the weekly Unemployment Claims report, any gentle number will be enough to trigger a softening in the US dollar. Likewise, upbeat economic data will move the needle in favor of a stronger dollar, making it a bumpy ride until a possible first rate cut in September.

Daily summary of market players: The devil is in the details

• At 12:30 GMT weekly jobless claims and Producer Price Index data will be released:
  • Weekly unemployment data for the last week of May:
    • Initial claims are expected to decline slightly to 225,000 from 229,000.
    • Continuing jobless claims should enhance to 1,800 million from 1,792 million.
  • Data from the May Producer Price Index:
    • The monthly headline PPI increased by a marginal 0.1%, compared with the 0.5% enhance recorded in April. On an annual basis, the headline PPI will enhance to 2.5% from 2.2%.
    • Monthly core PPI should also fall to 0.3% from 0.5%. Annual core PPI should remain stable at 2.4%.
• Federal Reserve Bank of New York President John Williams will be the Fed’s first speaker to emerge from the blackout period that occurs during the Fed’s interest rate decisions. Williams will take part in a moderated discussion around 16:00 GMT with US Treasury Secretary Janet Yellen at the Economic Club of New York.
• Stocks don’t like to lag behind without the Fed’s knowledge when Asian and European indexes are down. However, US futures are rising, with a diminutive exception for the Dow Jones Industrial Index.
• The CME FedWatch Tool shows a 38.5% chance of Fed interest rates remaining at current levels in September. The chance of a 25 basis point rate cut is 56.7%, while the chance of a 50 basis point rate cut is 4.8%.
• The benchmark 10-year U.S. Treasury bond fell to its lowest level this month, near 4.31%.

US Dollar Index Technical Analysis: This could go either way

The US Dollar Index (DXY) is facing the fallout from an eventful Wednesday that saw a disinflationary inflation report and a Fed interest rate decision that clouded the outlook. With the Fed not committing to any plan going forward, any softer data point this summer would contribute to further dollar easing. If the US data weakens further, a weaker dollar can be expected in the coming months.

On the other hand, there are no huge changes in levels that investors need to watch out for. The first was 105.52 and this level remained for most of April. The next level to watch is 105.88, which triggered a rejection in early May and will likely play a resistance role again. Further on, the biggest challenge remains the level of 106.51, the highest level since the beginning of the year on April 16.

On the other hand, the three straightforward moving averages (SMAs) continue to provide support. First and very close is the 55-day SMA at 105.07. Slightly lower near 104.48, both the 100-day and 200-day SMAs form a double layer of protection to support any declines. If this area becomes damaged, look for 104.00 to save the day.