U.S. Dollar Index Loses Steam After A Three-Week Rally
Alex Boltyan | Jul 15, 2022 03:16PM ET
The U.S. dollar faces some profit taking into the weekend with the DXY pulling back from a two-decade high reached on Thursday at 109.29. At the time of writing, the index trades at the 108.05 level, 0.5% below its opening price, but still posting a 1.1% weekly gain, the third in a row.
The Federal Reserve Governor Christopher Waller said on Thursday that markets may have gotten ahead of themselves by pricing a 100 bps rate hike in July. Also, he claimed that the FOMC would remain data-dependent. His not-so-hawkish tone hammered bets of a more aggressive move by the Fed and weighed on the greenback.
On Friday, data showed U.S. June’s retail sales increased 1% after decreasing 0.1% in May, beating the market’s consensus of 0.8%, easing recession fears. The CME FedWatch Tool suggests that tightening expectations eased and that swaps markets are now pricing a 41.6% chance of a 100 bps hike for the FOMC’s July meeting.
From a technical standpoint, the DXY holds a bullish bias according to the weekly and daily charts. Despite Friday’s pullback, the index is set to close a third consecutive weekly gain, but the shape of the candle suggests a deceleration of the bullish momentum.
The daily RSI is correcting and holds a negative slope still in overbought territory. At the same time, the MACD continues to print lower green bars, indicating that the DXY downward correction may extend in the following days.
On the downside, the next support levels are at 107.70 and 106.80. A break below the latter levels would pave the way to the 20-day SMA, currently at 105.93. On the upside, the next resistance levels are at Thursday’s high of 109.29. followed by 109.89 and the 110.00 psychological level.
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