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US Dollar stands weak as markets asses fresh Powell words

  • US Dollar is showing additional losses, DXY index finds support at the 104.00 area.
  • Markets are increasingly confident about a September rate cut.
  • Jerome Powell was on the wires on Monday but didn’t provide any new insights on the policy outlook.

The US Dollar measured by the DXY maintains its bearish trajectory, hitting lows from April around 104.00. The downturn is largely attributed to signs of disinflation in the US economy, which is fostering confidence in the markets for a potential Federal Reserve (Fed) rate cut in September.

Despite boosting market certainty of a rate cut, Fed officials are adopting a cautious stance by emphasizing that their decision remains highly reliant on data.

Daily digest market movers: USD under pressure due to weak inflation numbers, eyes on Powell

  • Concerning the data releases, last week’s low inflation numbers have put the USD under significant pressure, amplifying the possibility of a September rate cut.
  • Federal Reserve Chairman Jerome Powell is scheduled to speak at the Economic Club of Washington DC later in the sessions, with markets keenly awaiting any hints regarding future monetary policy actions.
  • This week will also see significant commentary from other US policymakers in the run-up to the monetary policy meeting on July 31.
  • The CME FedWatch Tool continues to show a high probability of a rate cut in September, currently standing at around 86% for a 25 bps cut.
  • The US 10-year benchmark rate is currently at its lowest since April, at 4.20%.

DXY Technical Outlook: Bearish sentiment continues as DXY remains below the 200-day SMA

The outlook is negative for the USD with daily indicators, including the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), deeply below the 50 mark, nearing the oversold threshold. In addition, the DXY index is trading at its lowest level since April, having lost the 200-day Simple Moving Average (SMA) support.

While it has lost more than 0.80% since the end of last week, a mild upward correction may be possible with the mentioned SMA at 104.40 as the main resistance to target.

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