US Dollar sideways as Trump is on track and Yen retreated

• The US Dollar has Trump and Suzuki to thank for its early recovery on Friday. 
• All eyes on the Fed's preferred inflation gauge: PCE
• The US Dollar index hovers around 106.00, back to Wednesday’s levels. 

The US Dollar (USD) is having difficulties in pricing in all events and elements that are moving in the markets. Traders are still digesting the Trump-Biden debate where nearly everyone saw former US President Donald Trump as the victor. Not much time though to fret over the event, with risk increasing that the Japanese Ministry of Finance might intervene later this Friday after the Japanese Yen hit a fresh multi-decade low against the US Dollar and snapped above 161. 

On the US economic calendar front, only one element which counts, and that is the Fed’s preferred core inflation gauge: Personal Consumption Expenditure Index. Disinflation is expected to remain on track. So only a very large disinflationary surprise would be able to weaken the US Dollar, while an in-line or bigger number would mean a stronger Greenback by the end of this week. 

Daily digest market movers: PCE ahead

• At 12:30 GMT, The Personal Consumption Expenditures for May are to be released:
  • Core Monthly PCE expected to head from 0.2% to 0.1%.
  • Headline Monthly PCE is expected to slide from 0.3% to 0.0%.
  • Yearly Headline PCE should abate from 2.7% to 2.6%.
  • Yearly Core PCE seen heading from 2.8% to 2.6%.
• The Chicago Purchase Managers Index (PMI) is to be released at 13:45 GMT. Expectation is for the number to remain in contraction from 35.4 to 40.0.
• At 14:00 GMT, the University of Michigan will release its final reading for June:
  • Consumer Sentiment to remain quite stable at 65.8, coming from 65.6.
  • Inflation expectations locked in at 3.1%.
• Equities are trying to close this week off on a high note, with already several green closures in Asia, while European and US equities are in the green. 
• The CME Fedwatch Tool is broadly backing 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 stands at a 35.9% chance, while a 50-basis-point rate cut has a slim 6.2% possibility. 
• The US 10-year benchmark rate trades near the weekly high at 4.30%.

US Dollar Index Technical Analysis: Watch out for Japan

The US Dollar Index (DXY) may go where it wants to go in the coming days, though a sword of Damocles is hanging above its performance. The Japanese Ministry of Finance has repeated its state of emergency on the exchange rate and might intervene at any given moment as of now. That means a substantial move could unfold, which would knock out the Greenback for a moment. 

On the upside, 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 uptick in US inflation or a further hawkish shift from the Fed. 

On the downside, 105.53 is the first support ahead of a trifecta of Simple Moving Averages (SMA). First is the 55-day SMA at 105.27, safeguarding the 105.00 round figure. A touch lower, near 104.72 and 104.46, both the 100-day and the 200-day SMA form a double layer of protection to support any declines. Should this area be broken, look for 104.00 to salvage the situation. 

US Dollar Index: Daily Chart