US Dollar (DXY) Index News: Set Up for Breakdown Under 200-Day Moving Average

Dollar Index Dips Amid Mixed Economic Signals

The US Dollar Index (DXY) fell by 0.33% on Friday, while the euro gained 0.41%, as US Treasury yields dipped following inflation data that matched expectations. The dollar index slid to 104.471 after reaching a two-week high on Thursday.

At 13:26 GMT, the U.S. Dollar Index (DXY) is trading 104.454, down 0.290 or -0.28%.

Inflation Data in Focus

US inflation data showed a sideways trend in April, raising concerns about the persistence of elevated price levels. The personal consumption expenditures (PCE) price index increased by 0.3% in April, consistent with March’s gain, and rose by 2.7% year-on-year. Core PCE, excluding food and energy prices, increased by 0.2% month-on-month, slightly below the forecasted 0.3%. The annual core PCE rate remained steady at 2.8%.

Economic Growth and Rate Cut Expectations

The US economy grew at an annualized rate of 1.3% in Q1 2024, revised down from the previous estimate of 1.6%. This revision suggests the Federal Reserve may consider rate cuts later this year, with a 45% chance of a rate cut in September priced in by the CME Group’s FedWatch Tool. The Fed’s upcoming policy meeting on June 11-12 will be closely watched for further guidance.

Euro Zone Inflation Trends

The euro edged up to $1.085 as French, German, and Spanish inflation data came in slightly higher than expected. This supports market expectations of an ECB rate cut on June 6, with further reductions anticipated in September and December. All 82 economists polled by Reuters expect an ECB rate cut next week.

Yen and Bank of Japan Policy

The yen slipped 0.2% against the dollar to 157.14 but stayed above the four-week low reached earlier in the week. Core consumer inflation in Tokyo accelerated in May, though price growth excluding fuel moderated, adding uncertainty to the Bank of Japan’s next rate hike timing. The yen remains close to the 34-year low of 160.245, raising speculation of potential dollar-selling intervention by Tokyo.

Market Forecast

Persistent inflation and mixed economic signals are likely to keep the US dollar under pressure in the near term. Traders should monitor upcoming inflation data and central bank meetings for further indications of rate policy changes. The dollar may face continued volatility as markets adjust to evolving economic conditions and central bank strategies.

Technical Analysis

The U.S. Dollar Index is trading sharply lower on Friday, putting it in a position to challenge the 200-day moving average support at 104.424. A trade through this indicator could trigger an acceleration to the downside with 104.080 the next target price.

Currently, resistance is the 50-day moving average at 105.089. It is controlling the intermediate uptrend. Taking out the 200-day MA with conviction will turn it into resistance.