The US Dollar, measured by the DXY index, remained strong during Wednesday’s session, driven by selling pressure on the Japanese Yen. The USD/JPY pair surged by 2%, keeping the DXY index above 103.00. Market sentiment will likely dictate the pace of the USD with no economic highlights on Wednesday.
Despite market fears of further Fed easing, the US economy is performing well above trend. This has led to a market that may be overly aggressive in its easing forecasts.
US Economic Performance Challenges Market’s Easing Bets
- Market mispriced on Fed’s easing extent, still fully pricing in 100 bps by year-end
- Anticipation of a 50 bps reduction in September at 80%, down from 90% on Monday
- Overall easing expected between 175 to 200 bps over the next 12 months
A severe US economic recession would need to materialize for the current easing path to remain feasible. It remains difficult to counteract the prevailing dovish market sentiment without more data.
DXY Technical Outlook: Bears Take a Breather
The DXY index’s technical outlook is showing signs of improvement, with the RSI and MACD indicators pointing towards a potential upward trend. However, the index remains below key moving averages, indicating a bearish outlook.
Support levels are at 103.00, 102.50, and 102.20, with resistance at 103.50 and 104.00.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States and is the most traded currency globally. The value of the USD is influenced by the Federal Reserve’s monetary policy, which aims to control inflation and promote full employment. Factors such as interest rates and quantitative easing can impact the USD’s value.