On Wednesday, the US Dollar (USD) remains reasonably calm as investors avoid committing to significant positions ahead of next week’s highly anticipated data releases and central bank policy statements. For the third day in a row, the US Dollar Index, which measures the value of the US dollar against a basket of six major currencies, oscillates in a narrow band at 104.00.
Market investors will be watching the May Consumer Price Index (CPI) data from the United States (US) attentively on Tuesday before the Federal Reserve (Fed) issues its interest rate decision on Wednesday. The Fed will also release the updated Summary of Projections, often known as the dot plot.
The US Dollar continues to be directionless.
According to the OECD’s most recent forecast, the Fed funds rate would peak at 5.25%-5.5% in Q2 2023, followed by two “modest” drops in the second half of 2024.
Later in the day, the US Census Bureau will release the April Goods Trade Balance. Consumer Credit Change will also be on the US economic calendar.
The ISM monthly statistics released on Monday revealed that business activity in the US service sector expanded in May, but at a slower pace than in April. The ISM Services PMI fell to 50.3 in May, down from 51.9 in April, and fell short of the market consensus of 51.5.
According to the ISM PMI report’s further information, The Prices Paid Index fell to 56.2 from 59.6, while the Employment Index fell to 49.2 from 50.8.
In the European session, US stock index futures are trading flat. Wall Street’s main indexes finished almost unchanged on Tuesday, underscoring the cautious market attitude.
Technical Outlook
The US Dollar Index (DXY) is trading at 104.00, the Fibonacci 23.6% retracement of the November-February downturn. Meanwhile, the Relative Strength Index (RSI) signal on the daily chart remains comfortably above 50, indicating that buyers like to remain in control.
DXY’s initial resistance level is 104.50 (static level), followed by 105.00 (psychological level). A daily close above the latter may attract more buyers and pave the way for a longer-term rebound towards 105.60 (Fibonacci 38.2% retracement, 200-day Simple Moving Average (SMA)).
On the downside, if DXY ends the day below 104.00, negative pressure may escalate. In such case, 103.50 (static level) might be considered first support prior to 103.00 (100-day SMA).
