The US Dollar (USD) is on track for its worst monthly performance against the Euro after the European Central Bank (ECB) and its chairman Christine Lagarde out-hawkished the US Federal Reserve (Fed). The ECB delivered a 25 basis points rate hike and committed to a hike for July, while the Fed Chairman Jerome Powell reiterated that the US central bank remains data dependent and that it will hike when it deems necessary. This split in stance on monetary policy gave the Euro wings and saw the US Dollar losing ground against some of its peers.
On Friday, traders are assessing the Bank of Japan (BoJ) policy meeting which already took place early this morning in the ASIA PAC session and saw BoJ chairman Kazuo Ueda repeating an unchanged stance as long as price forecast is above 2%, maintaining its policy rate at -0.1% and its 10-year JGB yield target around 0%. On the speakers front, markets will hear from three Fed members with Jim Bullard, Chris Waller at 11:45 and Tom Barkin at 13:00 GMT. Look for clues or any change in statements in order to further clarify what Jerome Powell communicated in case the Fed is not happy with the current stance of the markets, as Michigan Consumer Sentiment and Inflation expectations are to close off this trading week at 14:00 GMT in terms of economic data.
The US Dollar has taken a firm step back against a few of its peers, while it tries to cling on to gains against some Asian currencies. This mixed bag of performances triggers a mild uptick in the US Dollar Index (DXY) this Friday morning. After the substantial slide lower on Thursday from 103 to nearly 102 it looks to try and hold above 102 before the weekly close.
On the upside, a whole other ball park now as the 55-day Simple Moving Average (SMA) at 102.55 has turned from support into resistance. Should the DXY recover further today, look for the 103 psychological level as the next big challenge to the upside. The high of May at 104.70 remains the ultimate target longer term.
On the downside, the psychological level near 102 is the only element upholding DXY for now. Once price action should start to reside below it, expect to see another nosedive move for the US Dollar Index toward 100.82. That means a challenge for the low of this year and means a substantial devaluation for the Greenback to come.
The US Dollar Index, also known as DXY or USDX, is a benchmark index that was established by the US Federal Reserve in 1973. DXY is widely used as a tool measuring the US Dollar (USD) value in global markets. The index is calculated by measuring the US Dollar’s performance against a basket of six foreign currencies, the Euro, the Japanese Yen (JPY), Swedish Krona (SEK), the British Pound (GBP), the Swiss Franc (CHF) and the Canadian Dollar (CAD).
With 57.6%, the Euro has the biggest weight in the index followed by the JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%), and CHF (3.6%). Hence, a sharp decline in the EUR/USD pair could help the US Dollar Index rise even if the US Dollar weakens against some of the other currencies in the basket.
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