Published on Jun 16, 2023

Daily Analysis For US Doller Index 16-06-2023

US Doller Index Analysis

Key Points: -

· The US Dollar Index is experiencing volatility near its monthly low following a significant decline, marking its largest drop since early March.

· The lackluster growth in US Retail Sales, mixed activity data, and discouraging Jobless Claims figures contribute to dampening concerns about a hawkish stance from the Federal Reserve.

· Improved market sentiment and recent actions by the European Central Bank (ECB) are putting pressure on US Treasury bond yields and the US Dollar Index (DXY).

· Traders are now closely watching US consumer sentiment data and inflation indicators for further guidance as expectations of a hawkish Fed stance begin to ease.

Today's Scenario: -

USD Dollar Index (DXY) bears are taking a pause as it hovers near its lowest levels in over a month, flirting with the 102.00 round figure during Friday's Asian session. This indicates a market sentiment that is easing its concerns about a hawkish move by the Federal Reserve for a rate hike in July. The risk-on mood is also prevalent ahead of mid-tier US data.

According to the latest data from the CME's FedWatch Tool, market participants are placing approximately 67% probability on a 25 basis points (bps) rate hike by the Federal Reserve in July. This reflects a lack of conviction among traders regarding the Fed's clear signals for a hawkish move in July, considering mostly disappointing US data.

Notably, US Retail Sales for May showed growth of 0.3%, surpassing expectations of -0.1% and the previous reading of 0.4%. The Core Retail Sales, which excludes auto sales, met market forecasts of 0.1% for the same month, compared to the previous reading of 0.4%. Moreover, the NY Fed Empire State Manufacturing Index surged to 6.6 in June, surpassing expectations of -15.1 and the previous reading of -31.8. However, the Philadelphia Fed Manufacturing Index dropped to -13.7 for the same month, compared to the previous reading of -10.4 and market forecasts of -14. Additionally, US Industrial Production for May decreased to -0.2%, falling short of the estimated 0.1% and the previous reading of 0.5%. The Initial Jobless Claims also came in at 262K for the week ended on June 09, in line with the upwardly revised figures and missing expectations of 249K.

It is worth mentioning that the European Central Bank's (ECB) announcement of 25 bps interest rate hikes and its indication of more to come put pressure on the US Dollar and the DXY, overshadowing the Federal Reserve's earlier hawkish stance. Additionally, the People's Bank of China (PBoC) cut its one-year interest rate by 10 bps, the first reduction in 10 months, which further boosted market sentiment and exerted downside pressure on the USD Dollar Index.

Previously, the USD Dollar Index reacted positively to the Fed's halt in its hawkish stance, but the aforementioned catalysts shifted the market sentiment to risk-on mode, leading to a decline in US Treasury bond yields and prompting the DXY bears to dominate. As a result, Wall Street benchmarks rallied by more than 1.0% each, while the US 10-year Treasury bond yields plummeted to 3.72%.

Looking ahead, the market will closely monitor the preliminary readings of the Michigan Consumer Sentiment Index (CSI) for June and the five-year inflation expectations, as the Fed's hawkish stance finds less acceptance. Additionally, the Bank of Japan (BoJ) Monetary Policy Meeting and discussions by the Federal Reserve will provide crucial guidance for clearer directions in the market.

Diagram of US Dollar Index (DXY): -

Economic Events : -

Date Event Impact Currency

01:30 (United States) Foreign Bond Investment Low USD

01:30 (United States) Net Long-term TIC Flows Medium USD

01:30 (United States) Overall Net Capital Flows Low USD

04:00 (New Zealand) Business NZ PMI Medium NZD

08:30 (Japan) BoJ Interest Rate Decision High JPY

12:30 (Austria) Inflation Rate MoM Low EUR

12:30 (Austria) Inflation Rate YoY Low EUR

12:30 (Austria) Harmonised Inflation Rate YoY Low EUR

12:30 (Austria) Harmonised Inflation Rate MoM Low EUR

12:30 (Austria) CPI High EUR

12:30 (Slovakia) Harmonised Inflation Rate YoY Low EUR

12:30 (Slovakia) Harmonised Inflation Rate MoM Low EUR

12:30 (United States) Fed Bullard Speech Medium USD

13:30 (European Union) ECOFIN Meeting Medium EUR

13:30 (Italy) Inflation Rate YoY Medium EUR

13:30 (Italy) Harmonised Inflation Rate MoM Low EUR

13:30 (Italy) Harmonised Inflation Rate YoY Low EUR

13:30 (Italy) Inflation Rate MoM Low EUR

13:30 (Italy) CPI High EUR

14:30 (Euro Area) Inflation Rate MoM Low EUR

14:30 (Euro Area) Core Inflation Rate YoY Low EUR

14:30 (Euro Area) Inflation Rate YoY Medium EUR

14:30 (Euro Area) Labour Cost Index YoY Low EUR

14:30 (Euro Area) Wage Growth YoY Low EUR

14:30 (Euro Area) CPI High EUR

14:30 (Malta) Inflation Rate YoY Low EUR

15:30 (Portugal) PPI YoY Low EUR

15:30 (Portugal) PPI MoM Low EUR

17:15 (United States) Fed Waller Speech Medium USD

18:00 (Canada) Foreign Securities Purchases Low CAD

18:00 (Canada) Foreign Securities Purchases by Canadians Low CAD

18:00 (Canada) Wholesale Sales MoM Low CAD

19:30 (United States) Michigan Consumer Sentiment High USD

19:30 (United States) Michigan Inflation Expectations Low USD

19:30 (United States) Michigan Current Conditions Low USD

19:30 (United States) Michigan 5 Year Inflation Expectations Low USD

19:30 (United States) Michigan Consumer Expectations Low USD

22:30 (United States) Baker Hughes Oil Rig Count Low USD

22:30 (United States) Baker Hughes Total Rig Count Low USD

Buy Scenario: -

Currently, the USD Dollar Index is showing a 0.05% increase, trading at 102.19. If it manages to break above the 100-day Simple Moving Average (SMA) at 103.04, it could potentially open the door to further gains, targeting the level of 104.69, which was the monthly high on May 31. Beyond that, the next resistance to watch would be the 200-day SMA at 105.28. Till we do not advise to buy US Dollar Index.

Sell Scenario: -

On the downside, if the index faces selling pressure, the immediate support level is seen at 102.04, which was the monthly low reached on June 16. If this support is breached, the next level to watch is at 100.78, which was the lowest point reached in 2023 on April 14. Finally, the round level of 100.00 could act as a significant psychological support if the index continues to decline. Till we do not advise to sell in US Dollar Index