U.S. Dollar Index Turns South Amid Weak Activity Data
The U.S. dollar, measured by the DXY index, struggles to find demand on Friday and is falling for second day in a row and posting the fifth decline in the last six trading days, following disappointing U.S. PMI data.
Even though the DXY climbed to a daily high of 107.35 during the European session on the back of weaker-than-expected European PMIs, the dollar turned lower in the second half of the day. At the time of writing, the DXY trades at 106.45, 0.20% below its opening price and is on track to post a 1.4% weekly decline, snapping this way a three-week winning streak.
S&P Global published Eurozone PMIs data, which showed the composite index fell below 50 for the first time in two years in July, printing at 49.4, missing markets expectations of 51. Meanwhile, across the pond, the U.S. composite PMI fell to a 26-month low of 47.5 and the downturn was led by a steep drop in the service sector's activity whose monthly reading was 47, missing by far the market's consensus of 52.6. The manufacturing PMI contracted to 52.3, but beat the investors' expectations of 52.
Market attention now shifts to the FOMC meeting next week. Markets are pricing a high probability of a 75 basis points hike, while expectations of a 100 bps raise have decreased in relation to the start of the week. After the ECB took yesterday a “larger step” and surprised the markets with a 50 bps raise, the U.S. dollar could face further losses if the Fed rules off the 100 basis point increase despite the inflationary crisis.
According to the weekly chart, the DXY holds a bullish perspective but will close this week with losses of around 1.4%, the steepest since January.
The daily charts suggest a bearish outlook for the shorter term as the index failed to hold the 20-day SMA support. The daily RSI holds a negative slope in neutral area, while the MACD prints higher red bars, indicating increasing selling interest.
The immediate support level is seen at 105.70, followed by the 104.70-65 area and then 104.00. On the upside, the 20-day SMA at 106.55 (former support) is the first resistance that the bulls must regain. Above, the next levels of resistance are seen at the 108.00 area, followed by the cycle high of 109.29
Even though the DXY climbed to a daily high of 107.35 during the European session on the back of weaker-than-expected European PMIs, the dollar turned lower in the second half of the day. At the time of writing, the DXY trades at 106.45, 0.20% below its opening price and is on track to post a 1.4% weekly decline, snapping this way a three-week winning streak.
S&P Global published Eurozone PMIs data, which showed the composite index fell below 50 for the first time in two years in July, printing at 49.4, missing markets expectations of 51. Meanwhile, across the pond, the U.S. composite PMI fell to a 26-month low of 47.5 and the downturn was led by a steep drop in the service sector's activity whose monthly reading was 47, missing by far the market's consensus of 52.6. The manufacturing PMI contracted to 52.3, but beat the investors' expectations of 52.
Market attention now shifts to the FOMC meeting next week. Markets are pricing a high probability of a 75 basis points hike, while expectations of a 100 bps raise have decreased in relation to the start of the week. After the ECB took yesterday a “larger step” and surprised the markets with a 50 bps raise, the U.S. dollar could face further losses if the Fed rules off the 100 basis point increase despite the inflationary crisis.
According to the weekly chart, the DXY holds a bullish perspective but will close this week with losses of around 1.4%, the steepest since January.
The daily charts suggest a bearish outlook for the shorter term as the index failed to hold the 20-day SMA support. The daily RSI holds a negative slope in neutral area, while the MACD prints higher red bars, indicating increasing selling interest.
The immediate support level is seen at 105.70, followed by the 104.70-65 area and then 104.00. On the upside, the 20-day SMA at 106.55 (former support) is the first resistance that the bulls must regain. Above, the next levels of resistance are seen at the 108.00 area, followed by the cycle high of 109.29
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