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US Dollar Sees Slight Increase in Jobless Claims

  • The US Dollar saw a sizeable correction on Wednesday after the US CPI release reignited the narrative towards disinflation.
  • Thursday's data isn't really helping, with an increase in Continuing Unemployment Claims almost reaching 1.8 million for this week.
  • The DXY Dollar Index flirts with a break down of 104.00.

The US Dollar (USD) maintains small gains on Thursday after suffering a firm depreciation following the latest release of the Consumer Price Index (CPI) which showed that the disinflationary trend resumed in April. The pieces of the puzzle are starting to fall into place with the recent spate of data pointing to some easing on all fronts of the economy, and the softer CPI was the icing on the cake. Markets cheered evidence of declining inflation, with the S&P 500 hitting new all-time highs.

However, Chicago Federal Reserve Bank President Austan Goolsbee and Minneapolis Federal Reserve Bank President Neel Kashkari called for keeping rates steady for a while longer, warning that market expectations for cuts interest rates could fluctuate too much.

On the economic data front, weekly initial jobless claims have already been released, along with the Philadelphia Fed manufacturing survey for May. Next, the Industrial Production data will be the last important piece. In the latter, Japan and the Eurozone have recently reported an increase in industrial production, and a decline in US production could trigger another round of weakness for the Dollar.

Daily summary of market movements: Manufacturing sinks

  • Thursday began with a batch of data on housing, employment and prices:
    • Construction Permits went from 1,467 million to 1,440 million in March.
    • Housing Starts went from 1,287 million to 1,360 million.
    • Weekly jobless claims showed mixed results for once:
      • Initial Jobless Claims were stronger at 222,000, down from 232,000 last week.
      • Continuing claims, however, rose to 1.794 million, from 1.781 million last week.
    • The April Import/Export Price Index will also be published.
    • Philadelphia Fed manufacturing survey for May fell from 15.5 to a meager 4.5
  • Industrial Production and Capacity Utilization are scheduled for 15:15 GMT. Industrial Production was previously 0.4% in March, expected to be 0.1% for April.
  • Markets can digest all of the above data before a group of Fed officials take the floor:
    • Federal Reserve Vice Chairman of Supervision Michael Barr will testify before the US Senate Committee on Banking.
    • Federal Reserve Bank of Philadelphia President Patrick Harker will discuss the economic impact of higher education and health care.
    • Federal Reserve Bank of Cleveland President Loretta Mester will participate in a luncheon at the Wayne Economic Development Council.
    • Federal Reserve Bank of Atlanta President Raphael Bostic participates in a moderated conversation on the U.S. economic outlook at an event hosted by the Jacksonville Business Journal.
    • All of this Thursday's speakers are voters of the Federal Open Market Committee (FOMC), except for the Fed's speaker, Harker.
  • The World Economic Forum in Qatar began on Tuesday morning. Headlines from world leaders may emerge all week.
  • US stock futures are starting to falter just before the US Opening Bell and are shedding previous small gains.
  • The CME Fedwatch tool suggests a 91.6% probability that June still sees no change to the Federal Reserve's federal funds rate. The odds have changed for September with the tool showing a 51.4% chance that rates will be 25 basis points lower than current levels.
  • The 10-year US Treasury yield is trading around 4.35%, far from the lowest level this month.

DXY Dollar Index Technical Analysis: Manufacturing hurts

The DXY Dollar Index has broken several important supports on its downward trajectory on Wednesday. Although some supports come through, several rejection levels may now emerge and trigger another violent sell-off. A crucial level to watch is 103.83, the 55-week SMA, because if it breaks it would open space for the DXY to sink to 100.00.

To the upside, several levels need to be recovered again after Wednesday's firm correction. The first is the 55-day SMA at 104.68, along with a pivot level at 104.60. The next step would be 105.12 and 105.52 in case the DXY has room to recover further.

On the downside, the 100-day SMA around 104.11 is the last man standing to support the decline. Once that breaks, a bit of air pocket is placed between 104.11 and 103.00. If US dollar outflows persist, the March low at 102.35 and the January low at 100.61 are levels to watch.

Source: Fx Street

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