The US Dollar applauds the weakness of the PMIs, although without big sales for the Dollar

• The US dollar falls further after the US PMIs fall into the contraction zone.
• Surprisingly encouraging PMI data from France, Germany and the Eurozone led to notable strength in the Euro.
• The US Dollar Index eases and falls below 106.00 to 105.60.

The US dollar (USD) depreciated this Tuesday after the German and French Purchasing Managers' Index (PMI) figures partially surpassed the US PMI for April. The most important turning point is the fact that US services fell below estimates, while the manufacturing sector entered into contraction. If you compare all the data, the United States is in the same position as France and Germany, as services are slightly above 50, while manufacturing PMIs are in contraction in all three economies.

Regarding economic data, all eyes will be on the auction of 2-year US Treasury bonds this Tuesday. The previous allocation was made at 4.595%, and now it could be even higher. The coverage ratio will also be a very important factor, since the US Treasury has to allocate a very large amount with the debt renewal and more and more packages approved by Congress, which also need to be allocated.

Daily Market Summary: PMIs Curb Exceptionalism

• The EU is considering imposing sanctions on companies that send weapons and material to Russia.
• French preliminary HCOB services PMI rebounded to 50.5 in April from 48.3. The German HCOB Services PMI shot up to 53.3 in the same month from 50.1 in March. This pushed EUR/USD up to 1.0695, even though all other PMI segments were lagging or still contracting in both France and Germany.
• Eurozone data showed the HCOB services PMI rose to 52.9 in April from 51.5 in March, well above the expected rise to 51.8.
• The US Redbook Weekly Index for the week ending April 19 stood at 5.3%, up from 4.9% previously.
• There were fireworks with the preliminary US S&P Global PMI data:
  • The Services component went from 51.7 to 50.9, a downward surprise.
  • Manufacturing fell in contraction to 49.9, from 51.9 previously.
  • The composite index stood at 50.9, up from 52.1 previously.
• Sales of new homes went from 0.637 million to 0.693 million.
• In addition to the home sales data, the April manufacturing index from the Richmond Federal Reserve (Fed) was also released. It matched expectations and saw a slight increase to -7 from -11.
• The US Treasury places new bonds on the market at 17:00 GMT. This will have a maturity of 2 years.
• Equity markets are delighted with the softness of the US data, with the Nasdaq up more than 1%, followed by the S&P and the Dow Jones.
  • According to CME Group's FedWatch tool, expectations that the Fed will keep monetary policy unchanged in June are firming, with a small 15% chance of an interest rate cut at that meeting. The Fed's first rate cut is scheduled for September.
• The 10-year US Treasury bond yield is trading around 4.57%, at weekly lows.

US Dollar Index Technical Analysis: US Dollar Retraces

The US Dollar Index (DXY) is facing some pullback due to the renewed strength of the Euro. The Euro represents 57.6% of the DXY index composition and is therefore the main driver of the index movements. With the release of US PMI data, markets can compare the results. Although the DXY is retreating now, the rate differential will still be in play and could limit or prevent DXY selling in the coming days.

To the upside, the April 16 high at 106.52 is the level to beat. Further up and above the 107.00 round level, the DXY could find resistance at 107.35, the October 3 high.

On the downside, the first important level is 105.88, a fundamental level since March 2023 (acting as resistance at that time and functioning as support in November). Further down, 105.12 and 104.60 should also act as support ahead of the 55-day and 200-day SMA at 104.17 and 103.91, respectively.