On Friday, May 27, DXY was down by 0.10% during the European session. The index is trading at 101.65 at the time of writing.
- DXY deepens its losses from the previous day, testing the lowest levels in five weeks.
- The DXY’s underperformance is backed up by poor GDP.
- US yields are rising as the economy slows.
DXY fundamental forecast
DXY is treading water as it approaches its monthly low of 101.45 during Friday’s Asian session. At the opening of the European session, the index is maintaining its downward trend.
Slim figure
On Thursday, the DXY sold off in response to further deterioration in the Gross Domestic Product (GDP) and Personal Consumption Expenditure (PCE) estimates.
The annualized GDP was -1.5%, worse than projections and the previous print of -1.3% and -1.4%. Lower GDP figures have cast doubt on the economy’s growth prospects.
US Yields stabilizes
The 10-year Treasury note rate jumped 2.3 basis points to 2.77% after dipping to 2.70% earlier.
On Wednesday afternoon, the Fed issued the minutes from its May meeting, indicating that the central bank was prepared to proceed with additional 50-basis-point interest rate rises, maybe going further than the market expected.
The Federal Open Market Committee also stated that the central bank’s policy stance may shift from “neutral” to “restrictive.”
What in the world
While the world grapples with Russia’s war in Ukraine, Secretary of State Antony Blinken labeled China the “most serious long-term risk to the international order” on Thursday.
The speech, which established the Biden administration’s stance toward China, comes as the United States advises the world’s second-largest economy not to assist Moscow in evading global sanctions in response to the Kremlin’s invasion of Ukraine.
Blinken agreed that the United States would have to compete with China on several fronts, but he took precautions to avoid escalating tensions between the two countries.
Key data releases from the US
Today, the PCE inflation index will take center stage in the US docket, followed by the final print of the Consumer Sentiment. Furthermore, numbers for the Trade Balance, Personal Income, and Personal Spending will be presented.
What’s next?
The dollar extends its weekly decline and threatens to test the 101.00 level. Meanwhile, a Federal Reserve rate hike appears to be priced in, while the higher inflation backdrop and tight labor market support further dollar strength in the long run.
On the downside, the growing speculation of a US economic hard landing resulting from the Fed’s more aggressive normalization has the potential to weaken the buck’s optimistic prospects.
DXY technical analysis: hovering around the 101.60 level
During the European session, DXY is hovering around the 101.60 level. So far, the index has lost 0.10%. The index is now trading at 101.65.
The index is above its 100-day MA on the daily chart, and the RSI is near the 40-level. A break above 102.10 would open the door to 102.45. If it can cross that level, we’ll see the index touching 102.63.
On the flip side, the next support for the index lies around 101.57. If the index slips below this level, we can see a downward movement towards the 101.39 level.
