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US Dollar Outlook: DXY Index Decline Pauses on Markit PMI Data

US Dollar Outlook: DXY Index Decline Pauses on Markit PMI Data

Rich Dvorak, Analyst

US DOLLAR PRICE OUTLOOK: US DOLLAR EXTENDS SLIDE ON BETTER-THAN-EXPECTED MARKIT MANUFACTURING PMI REPORT

  • US Dollar on pace for a 1.25% decline on balance over the last two trading sessions
  • DXY Index plunges below the 97.00 price level as expected market volatility ebbs
  • Markit PMI data likely contributing to the latest risk-on tilt amid trade talk whiplash

The US Dollar has extended markedly lower so far on Tuesday in a continuation of declines notched the prior session. The DXY Index, a basket of major currency pairs reflecting broad US Dollar performance, now trades about 1.25% below last Friday’s closing price. Recent USD price action appears to follow another pullback in the VIX ‘fear-gauge’ amid relentless investor risk appetite.

DXY INDEX – US DOLLAR PRICE CHART: 2-HOUR TIME FRAME (05 JUN TO 23 JUN 2020)

DXY Index US Dollar Price Chart

Chart created by @RichDvorakFX with TradingView

The DXY Index is now perched slightly above the 61.8% Fibonacci retracement level of its month-to-date trading range. If this area of confluence fails to provide technical support to the broader US Dollar, the DXY Index might continue to edge lower toward the 96.00-price level.

Though there is potential for USD price action to ricochet back higher, the DXY Index could struggle to overcome its short-term bearish trendline formed by a series of lower highs and lower lows so far this week. This is considering leading economic data releases, like IHS Markit PMI reports, have underscored the V-shaped economic recovery narrative.

IHS MARKIT US COMPOSITE PMI CHART – JUNE 2020

IHS Markit PMI US Composite Historical Data Chart US Dollar Forecast

Source: IHS Markit Economics

June 2020 Flash Composite PMI data provided by IHS Markit just crossed the wires at 46.8, which is a material improvement from the prior reading of 37.0 for May. Both the manufacturing and services sector components were reported above consensus estimates, but US economic activity continues to contract considering the headline figure is still below 50.0.

Nevertheless, the better-than-expected Markit PMI data seems to have provided market participants with another reason to be optimistic and fuel appetite for risk. As such, the broader DXY Index could continue to face headwinds considering lack of demand for popular safe-haven currencies like the US Dollar.

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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