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DXY Index Weakens as US Dollar has Mixed Fortunes Before PCE Data. Will it Recover?

DXY Index Weakens as US Dollar has Mixed Fortunes Before PCE Data. Will it Recover?

Daniel McCarthy, Strategist

US Dollar, CHF/JPY, Crude Oil, Omicron, China, US Data - Talking Points

  • The US Dollar tumbled back inside key range as sentiment lifted
  • Encouraging Omicron study results lifted commodities and associated currencies
  • Equities moved higher ahead of US data. Will USD resume its uptrend?

The US Dollar weakened against commodities and commodity-linked currencies while it fared better against the defensive Japanese Yen. With risk currencies appreciating, an unusual move was USD/CHF sinking 0.50%. CHF/JPY jumped higher as a result. The Asian session did little to reverse these moves.

Gold and oil gained from the weaker USD. Oil also benefitted from Energy Information Administration (EIA) data that showed crude inventories had fallen by 4.72 million barrels, more than anticipated.

Markets continue to recover from Monday’s sell off in risk assets as concerns over the severity of the Omicron variant recede. Three studies this week have led to a preliminary assessment that the hospitalisation and mortality rate is significantly lower than the Delta variant.

The latest study is from South Africa’s National Institute for Communicable Diseases, the country where the variant was first identified.

Risk assets were also buoyed by consumer confidence data that beat expectations.

Additionally, President Joe Biden expressed a view that he thought he would be able to come to an agreement with Senator Joe Manchin to get his stimulus package through Congress.

Despite the rosier outlook, US treasuries were little changed across the curve, with the benchmark 10-year yield at 1.46%.

China locked down a city of 13 million people today as it maintains its zero-tolerance policy. The measures taken in the western city of Xi’an are the strictest since Wuhan in 2020.

It wasn’t enough to deter sentiment though, as APAC equities were mostly in the green to varying degrees today.

Looking ahead, the U.S. has a string of data releases with initial jobless claims, personal income, durable goods, consumer sentiment and new home sales numbers all due today. Canadian GDP figures will also be released.

US Dollar Index (DXY) Technical Analysis

The US Dollar remains in a sideways pattern for now as it broke down through the 10 and 21-day short term simple moving averages (SMA). This might suggest there is short term bearish momentum.

Initial support could be at the 34-day SMA, currently at 95.97. The previous lows and pivot point of 95.517, 94.742 and 93.278 may also provide support.

Resistance might be at the recent high 96.938 which has held once already.

US DOLLAR (DXY) INDEX

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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