- DXY is trading without a clear direction below 106.50.
- The US ISM Non-Manufacturing is the next item on the US docket.
- Investors’ attention is focused on the release of the FOMC minutes.
The Dollar Index (DXY), which tracks the greenback against a host of rival currencies, trades between gains and losses below 106.50 on Wednesday.
DXY focuses on data and conversations about the recession
After three consecutive daily advances, including a new cycle high near 106.80 on July 5, the index’s upward momentum now looks doubtful and fails to assert itself around the 106.50 area after the opening bell in Europe.
Indeed, speculation of a global slowdown intensified on Tuesday and weighed on investor sentiment, which in turn turned into additional legs for the dollar amid falling bond yields, a plunge in stocks and a deep pullback in oil.
For now, US yields are attempting a lackluster rebound against the backdrop of a broad downward trend in place since mid-June and amid persistent market talk of a possible global recession.
In the American session, the ISM Non-Manufacturing will command initial attention, followed by weekly mortgage applications and the S&P Global Services PMI, all before the release of the June FOMC meeting minutes. This latest document could show more details on the debate surrounding a possible 75 basis point rate hike later this month.
What to watch out for around the dollar
The index rose to a nearly two-decade high near 106.80 amid sharp contraction in risk appetite on Tuesday.
The Fed’s divergence from most of its G10 counterparts (especially the European Central Bank), combined with geopolitical turmoil and a resurgence of risk aversion among investors, is expected to provide fresh support for the dollar. . On the other hand, rumors of a recession in the US could temporarily undermine the upward trajectory of the dollar.
Key events in the US this week: MBA Mortgage Applications, Final Services PMI, ISM Non-Manufacturing, FOMC Minutes (Wednesday) – ADP Report, Initial Jobless Claims, Trade Balance (Thursday) – Nonfarm Payrolls, Unemployment Rate, Wholesale Inventories , change in consumer credit (Friday).
Topics of the moment: Hard/soft/soft landing for the US economy. Escalation of geopolitical tension in Russia and China. More aggressive Fed rate path this year and in 2023. Trade conflict between the US and China. Future of Biden’s “Build Back Better” plan.
Relevant levels of the Dollar Index
Now the index is down 0.05% at 106.43 and faces next support at 103.67 (weekly low Jun 27) seconded by 103.41 (weekly low Jun 16) and finally 101.29 (monthly low May 30). . On the other hand, if it breaks above 106.79 (2022 high Jul 5), it would be exposed to 107.00 (round level) and then 107.31 (Dec 2002 monthly high).
Source: Fx Street
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