US Dollar Index struggling for direction near 96.50

• The index remains under pressure in the mid-96.00s.
• US 10-year yields are hovering around the 2.0% area.
• Flash PMIs, housing sector, Fedspeak in the limelight today.

The leg lower in the greenback appears to  have met some support in the 96.50 region when measured by the US Dollar Index (DXY).

US Dollar Index looks to data, Fedspeak

The index is retreating for the third session in a row so far on Friday and is eroding the key 20-day SMA and the multi-day support line in the 96.50 region.

The selling bias in the buck has been exacerbated (exaggerated?) after the FOMC meeting opened the door for potential rate cuts in the next months, while market participants seems to already be pricing in an ‘insurance cut’ as early as next month.

While sellers keep the upper hand in the very near term, the correction lower in the greenback appears somewhat overdone. Provided the area around the 200-day SMA holds the downside, a rebound is likely once the post-FOMC dust settles, as investors should re-shift their focus to the generalized dovishness surrounding the majority of the G10 central banks. Against this context, the Fed and the performance of the US economy should remain supportive of the buck.

Later in the NA session, Markit will publish its advanced gauges for manufacturing and services PMIs, seconded by Existing Home Sales. In addition, FOMC’s L.Brainard (permanent voter, dovish) and Cleveland Fed L.Mester (2020 voter, hawkish) will participate in a ‘Fed Listens’ event and San Francisco Fed M.Daly (2021 voter, centrist) will host podcast on Community Economics.

What to look for around USD

The Federal Reserve is not ‘patient’ anymore, and rate cuts have already emerged on the horizon (likely to be delivered at the September and/or December meeting), while an ‘insurance cut’ could come as early as July. Compared with other central banks, the Fed has more room to manoeuvre in case it goes ‘full accommodative’ in the next months (due to the hiking cycle that started in 2015). If we add that the US economy is healthier than its overseas peers, the greenback’s status of ‘global reserve currency’ and its safe haven appeal, further weakness in the buck is far from a done deal.

US Dollar Index relevant levels

At the moment, the pair is retreating 0.04% at 96.59 and a breach of 96.46 (low Jun.7) would open the door for 96.04 (50% Fibo of the 2017-2018 drop) and then 95.82 (low Feb.28). On the other hand, the next up barrier emerges at 97.80 (monthly high Jun.3) seconded by 97.87 (61.8% Fibo of the 2017-2018 drop) and finally 98.37 (2019 high May 27).