The US dollar ended the week calmly, now the focus is on the labor market data

The US dollar declined slightly at the end of the week, erasing the day’s gains.
The US dollar finds support amid high US Treasury yields.
May PCE data showed an unexpected slowdown in US inflation.

At the end of the week, the US dollar, as measured by the DXY index, stabilized near 105.80, after reaching a high of 106.13 earlier in the session. This followed the release of personal consumer spending (PCE) data, but losses are circumscribed by high US Treasury yields.

The U.S. economy remains resilient to modest inflation signals, enough to keep the Federal Reserve (Fed) from fully adopting a monetary easing cycle.

Daily market update: US dollar loses after frail PCE data

On Friday, May personal consumption expenditure (PCE) showed that headline inflation fell to 2.6% y/y, down from 2.7% in the previous month.
Core PCE (which excludes volatile food and energy prices) also fell to 2.6% from a previous 2.8% in April.
U.S. Treasury yields provide dollar resilience, with 2-, 5-, and 10-year bond rates at 4.71%, 4.32%, and 4.33%, respectively.
The probability of a Fed rate cut in September increased slightly to 66%, up from a pre-publication expectation of 64%, according to the CME Fedwatch Tool.
Attention will now focus on the June labor market data.

DXY Technical Outlook: Positive dynamics continue, indices heading towards higher levels

Despite the recent data volatility, the technical outlook remains positive, with indicators in the green, but losing some steam. The Relative Strength Index (RSI) remains above 50, but appears to be pointing lower, indicating a slight pause in the bullish momentum. Green bars continue to develop on the Moving Average Convergence Divergence (MACD), further supporting a positive assessment, but at a slower pace.

The DXY index is holding above the 20-, 100- and 200-day moving averages (SMAs), confirming its ongoing positive stance. Despite the index’s stability at the highs seen since mid-May, there is room for further growth, suggesting that the DXY is poised for further gains, with the 106.50 zone next in sight. Meanwhile, 105.50 and 105.00 will be areas to watch on a decline.