US Dollar trades sideways following US PCE figures

• The US dollar has Trump and Suzuki to thank for its quick recovery on Friday.
• The PCE was in line with expectations.
• The US Dollar Index is hovering around the 106.00 level, returning to Wednesday’s levels.

He US dollar (USD) is having difficulty valuing all the events and elements that are moving the markets. Traders are still digesting the Trump-Biden debate, where almost everyone saw former US President Donald Trump as the victor. However, there is not much time to worry about the event, with the growing risk that Japan’s Finance Ministry could intervene later this Friday after the Japanese Yen hit a new multi-decade low against the US Dollar and surpassed the 161.

On the US economic calendar front, the Personal Consumption Expenditure (PCE) Price Index was fully in line with expectations. The disinflationary path is intact and faces no hurdles for now. Traders will be keeping an eye on the University of Michigan, ahead of the first round of the French elections over the weekend.

Daily summary of market movements: No summer surprises

• At 12:30 GMT, the Personal Consumption Expenditure Price Index for May was released:
  • The monthly core PCE rose from 0.2% to 0.1%.
  • The monthly general PCE went from 0.3% to 0.0%.
  • The annual overall PCE decreased slightly from 2.7% to 2.6%.
  • Annual underlying PCE decreased from 2.8% to 2.6%.
• The Chicago Purchasing Managers’ Index (PMI) will be released at 13:45 GMT. The number is expected to remain in contraction, falling from 35.4 to 40.0.
• At 14:00 GMT, the University of Michigan will publish its final reading for June:
  • Consumer Sentiment is expected to remain fairly stable at 65.8, coming from 65.6.
  • Inflation expectations remain at 3.1%.
• Stocks are trying to close this week on a bullish note, with several Asian stocks closing higher, while European and US stocks are trading in the green.
• The CME Fedwatch tool broadly supports a rate cut in September despite recent comments from Federal Reserve (Fed) officials. The odds now stand at 57.9% for a 25 basis point cut. A rate pause has a 35.9% chance, while a 50 basis point rate cut has a slim 6.2% chance.
• The US 10-year Treasury yield is trading near the weekly high at 4.27%.

US Dollar Index DXY Technical Analysis: Weekend Risks

The US Dollar Index (DXY) can go anywhere it wants in the coming days, although a sword of Damocles hangs over its performance. Japan’s Ministry of Finance has repeated its state of emergency over the exchange rate and could intervene at any time from now. That means a substantial move could develop, knocking the Dollar down for a moment.

On the positive side, the biggest challenge remains 106.52, the year-to-date high from April 16. A rally to 107.35, a level not seen since October 2023, would need to be driven by a surprise rise in US inflation or a more aggressive shift from the Fed.

On the downside, 105.53 is the first support before a trifecta of SMAs. First is the 55-day SMA at 105.27, protecting the round figure at 105.00. A little lower, near 104.72 and 104.46, both the 100-day and 200-day SMA form a double layer of protection to withstand any decline. If this area breaks, 104.00 to save the situation.

Dollar Index: Daily Chart