- DXY loses stability and is approaching 91.50.
- The underlying US PCE index did not surprise investors in May.
- Final June consumer confidence reached 85.5.
The dollar fell to the 91.50 area when tracked by the US Dollar Index (DXY) at the end of the week.
US Dollar Index Provided by PCE Results
The index retreats to fresh 2-day lows after PCE-measured US May inflation figures did not provide additional support to the high inflation narrative. In fact, the core PCE was up 0.5% month-on-month and 3.4% from a year earlier, easing expectations for a higher reading.
Other data indicated that personal spending stabilized on a monthly basis also in May and personal income contracted 2.0%.
Additionally, the University of Michigan Index showed June final consumer sentiment at 85.5 (from preliminary 82.9), while 5-year inflation expectations at 2.8% (from 3% previously).
Meanwhile, 10-year US bond yields remain around the 1.50% area, while DXY looks to rally from 91.50, where the critical 200-day SMA is also located.
What to look for around USD
The dollar remains under a level of downward pressure so far this week due to the improvement of the mood in the space associated with risk and the lateralized yields of the United States. The likelihood of the downsizing buzz coming earlier than expected and the prospect of higher rates in 2023 (or earlier) fueled the strong rebound in the dollar after the FOMC event to levels last seen in mid-April. and they introduced some uncertainty into the debate about the extent of “transitory” inflation. The strong rise in the DXY was also supported by higher yields at the shorter end of the curve, while yields on the key 10-year bond continue to orbit around 1.50%. Meanwhile, further progress in reopening the economy, the launch of the vaccine, and key fundamentals results remain key to dollar price action / sentiment on the near-term horizon.
Technical levels
Now, the index is losing 0.27% at 91.56 and faces the next support at 91.51 (June 23 weekly low) followed by 91.12 (100-day SMA) and finally 89.53 (May 25 monthly low). On the other hand, a breakout of 92.40 (June 18 monthly high) would open the door to 92.46 (23.6% Fibonacci level from the 2020-2021 drop) and finally 93.43 (March 21, 2021 high).
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