The US Dollar (USD), measured by the DXY index, is trading lower in Wednesday’s European session, hovering near 104.40, as investors await the Federal Reserve’s (Fed) monetary policy announcement. Market expectations suggest the Fed will maintain current interest rates, but the focus is on whether the central bank will signal a potential dovish shift in its policy stance.
Market Sentiment:
The US Dollar is underperforming against most major peers, except for the Australian Dollar, which weakened due to a decline in Q2 CPI data. Market participants anticipate a more dovish tone from the Fed, given recent data indicating cooling inflation and a softening labor market. The CME FedWatch tool suggests a high probability of a 25 basis point rate cut in September, with the possibility of further cuts later in the year.
Economic Data:
Before the Fed’s decision, the market will be watching the US ADP Employment Change for July, expected to show steady growth in private payrolls. Additionally, the upcoming ISM Manufacturing PMI and Nonfarm Payrolls (NFP) data for July, due on Thursday and Friday respectively, will further influence the US Dollar’s trajectory.
Geopolitical Tensions:
Despite escalating tensions in the Middle East, the market sentiment remains relatively stable, as investors seem to have already priced in these geopolitical risks.
Technical Analysis:
The USD Index is trading within a Symmetrical Triangle pattern, indicating a narrowing range and reduced volatility. The 50-day Exponential Moving Average (EMA) at 104.77 acts as a major resistance level for the US Dollar.
The 14-day Relative Strength Index (RSI) suggests a bearish trend, although the momentum is currently inactive. Key resistance levels are observed at the July 9 high of 105.20 and a three-month high near 106.00, while support levels are found at the July 17 low of 103.65 and the March 8 low of 102.35.