The US Dollar (USD) continued its rebound for a second day on Friday, recouping some of the losses incurred earlier in the week. This follows dovish Federal Reserve comments pushing back against market expectations of imminent rate cuts.
Reasons for the USD Rebound:
- Reduced Rate Cut Bets: Fed officials, including Neel Kashkari, Christopher Waller, and Mary Daly, emphasized that lower inflation data might not translate to immediate rate cuts. This dampened market enthusiasm for rate cuts.
- Lack of US Data: No major economic data releases for the US today limit movement in the USD.
Technical Analysis (USD Index – DXY):
- Short-Term Recovery: The DXY is currently in positive territory for the second day, but unlikely to erase all of Wednesday’s losses.
- Resistance Levels: The DXY needs to overcome key resistance levels like the 55-day SMA (104.68) and 104.60 to continue its rally.
- Support Levels: The 100-day SMA (104.11) acts as a crucial support level. A break below this could trigger further declines.
Outlook:
- Uncertainty Persists: Despite the Fed’s stance, market expectations for rate cuts in September remain at 68%.
- Weak Economic Data: Recent economic data hints at a potential slowdown in the US economy, which could eventually pressure the USD.
Overall:
The USD’s gains might be temporary. The underlying economic data and the possibility of future rate cuts could still lead to a depreciation of the US Dollar in the medium term.