US Dollar (DXY) Index News: Gains Capped as French Political Risks Recede

Treasury Yields and Retail Sales Impact

Initially, Treasury yields rose overnight, but the dollar failed to gain support from this increase. Later, yields turned lower following a weaker-than-expected retail sales report. The 10-year Treasury yield decreased by over three basis points to 4.244%, while the 2-year note yield fell nearly five basis points to 4.714%.

Retail sales in May rose by just 0.1%, missing economists’ expectations of a 0.2% increase. Additionally, April’s retail sales data was revised downward to show a 0.2% decline. This weaker-than-anticipated consumer spending has raised concerns about the economy’s strength and the potential for the Federal Reserve to implement multiple rate cuts later this year.

Federal Reserve Rate Cut Speculations

Minneapolis Fed President Neel Kashkari mentioned on CBS News that it is a “reasonable prediction” for the Fed to cut rates once this year, potentially in December. He emphasized the need for more evidence that inflation is on a path back to the 2% target. Other Fed officials, including Boston Fed President Susan Collins, Dallas Fed President Lorie Logan, and Richmond Fed President Tom Barkin, are scheduled to speak throughout the day, potentially providing further insights into the Fed’s outlook.

French Political Developments

The euro’s recent selloff, which bolstered the dollar last week, was driven by French President Emmanuel Macron’s call for a snap election following his party’s loss to Marine Le Pen’s eurosceptic National Rally in the European Parliament elections. Market expectations are leaning towards a hung parliament, with Le Pen’s party unlikely to implement drastic fiscal changes.

Market Forecast

Given the mixed signals from recent economic data and ongoing Fed speculations, the dollar is likely to remain under pressure in the short term. Traders should monitor upcoming Fed speeches and economic reports for further direction. The outlook suggests a bearish trend for the dollar as weak retail sales data and potential rate cuts weigh on investor sentiment.

Technical Analysis

The U.S. Dollar Index is retreating on Tuesday, putting it in a position to test the 50-day moving average support at 105.259.

Holding above the 50-day MA will indicate that buyers are defending the uptrend. If this triggers a momentum recovery then look for a test of 105.805.

A failure to hold the 50-day MA will signal a shift in intermediate term sentiment, setting up a potential test of the 200-day moving average at 104.470. This is long-term support.