US Dollar Weekly Outlook: is the US Heading for Uninspiring Economic Growth?

US Dollar Weekly Forecast: Bearish

• The US Dollar found some cautious support after persistent losses
• If US GDP is heading toward uninspiring growth, USD may fall
• As for the DXY technical path, key resistance levels remain in play

Fundamental Analysis – US Heading for Uninspiring Growth?

The US Dollar finally received a break this past week, but it was not by very much. By the end of Thursday, the DXY Index was up about 0.25% for the period. That is significant for two reasons. The first is that the last time the currency had a positive week was back in early March. The second is that it was the best 5-day gain since the end of February.

Broadly speaking, the US economic docket was light. This allowed traders to focus on the broader narrative: where is the Federal Reserve taking interest rates? Absent prominent event risk, traders might have been focusing on the underlying message from the central bank that rate cuts later this year are likely not on the table.

Still, what seems increasingly clear is that the Fed is very close to reaching the peak of this tightening cycle based on messaging so far. Of course, that is bound to change to evolving fundamental economic dynamics.

For the week ahead, all eyes will turn to the first estimate of US GDP data in Q1. Economists are looking at a median estimate of about 2 percent q/q, down from 2.6% in Q4. In the chart below, we can see how the Atlanta Fed GDPNow estimate for real GDP (which is inflation-adjusted) in Q1 has been evolving. Roughly around the time of SVB’s collapse, the central bank has been cautiously downgrading bets.

Since the beginning of this month, estimates have been slowly upgraded. A softer-than-expected outcome would likely hint at an economy that is heading towards uninspiring, moderate growth. Based on my analysis of the US Dollar smile theory, if that is going to be the direction (without a deep recession in the cards), then the currency may remain cautiously pressured.

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Atlanta Fed GDPNow Real GDP Estimate For Q1 2023 – 4/20/2023

The Technical Side of Things

From a technical point of view, the US Dollar has struggled to find follow-through after the emergence of a Bullish Engulfing candlestick pattern on the daily chart. The near-term falling trendline from March remains in play. Moreover, the 100-day Simple Moving Average could maintain the broader downside focus in the event of further gains ahead.

DXY Daily Chart

Chart Created in TradingView

--- Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

To contact Daniel, follow him on Twitter:@ddubrovskyFX