The U.S. Dollar index (DXY) has risen by 0.3%
to 104.34 points, while the EURUSD has declined by 0.2% to 1.08320, slightly
recovering from a dip to 1.08020 on Monday. Mixed economic data from the United
States has not provided solid support for the Greenback. The Federal Reserve’s
preferred inflation gauge fell to 2.5% YoY as expected, but the Core PCE, which
excludes food and energy prices, remained at 2.6% YoY, missing the expected
2.5%. A higher-than-expected Q2 GDP was offset by contraction in the latest
Manufacturing PMI readings. Despite this, the Dollar has strengthened, with the
EURUSD closing last week at 1.08570 and now hovering within a 1.08200-1.08500
trading range, near a strong support level. Large investors have been pushing
retail investors out of their long positions, moving the EURUSD below recent
consolidation lows and touching 1.08020 on Monday.
Market attention is focused on the Federal
Reserve (Fed) for potential signals of interest rate cuts in September. Further
cooling of the U.S. labor market in July could provide more reasons for the
Dollar to weaken. Investor sentiment remains negative, with the WisdomTree
Bloomberg US Dollar Bullish Fund (USDU) reporting net outflows of $4.0 million,
following a $60.4 million outflow the previous week, the largest since June
2023. U.S. 10-year Treasury yields fell to 4.18% from 4.24% at the beginning of
last week, and bets on a Fed rate cut in September have peaked at 100.0%,
according to the CME FedWatch Tool.
Although there may be another wave of elevated
volatility around the 1.08000 level as efforts to push retail investors out of
their long positions continue, the chances for the EURUSD to climb towards
1.10000-1.11000 in the mid-term are now much higher.
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