The U.S. Dollar index (DXY) has declined by
0.1% to 101.60 this week, with the EURUSD rising by 0.1% to 1.10250. The
Dollar, on the whole, has seen little change against its other major
counterparts.
Several factors have contributed to the
Dollar's ongoing correction. The Federal Reserve's preferred measure of
inflation, the PCE index, fell to 2.6% YoY, below the anticipated 2.8%. On a
monthly basis, the indicator turned negative to -0.1%, contrasting with the
expected 0.1%. Core PCE also slipped below the Fed's 2.0% target.
Despite this data, the debt market has shown
limited reaction, with U.S. 10-year Treasuries yields holding at around 3.90%.
Treasury yields are experiencing overbought conditions, and they are expected
to remain at this robust level for the time being.
Large investors are betting on a weaker
Dollar, as evidenced by the capital outflow from the WisdomTree Bloomberg U.S.
Dollar Bullish Fund (USDU), reaching its highest level since mid-June. Bets on
the first Fed interest rate cuts in March have risen to 78.2% from 75.6%,
according to the CME FedWatch Tool.
From a technical standpoint, the prevailing
scenario suggests another downside wave for the Dollar. The EURUSD closed last
week above the significant resistance at 1.10000 and is continuing its upward
movement this week. This signals the likelihood of the most aggressive downside
scenario for the Dollar, with the EURUSD potentially climbing to
1.11500-1.12500 by the end of the week. The ability to swiftly move away from
the 1.10000 level will be crucial in confirming this trend.
While no specific data may strongly influence
this movement, Thursday's release of Initial Jobless Claims could serve as a
formal reason for the Dollar to experience further downward pressure.
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