US Dollar retreats as traders stay on the sidelines before Jackson Hole

• US Dollar price action declines substantially and retreats in every major pair. 
• Traders will likely keep their powder dry for the main event on Friday, with US Fed Chair Powell's speech at Jackson Hole.
• The US Dollar Index could drop further as it breaks below important technical support.

The US Dollar (USD) weakens on Tuesday morning, with the Greenback retreating in full against almost every major G10-peer.  On Monday, the US Dollar seemed to remain steady and unphased with nervousness building towards Friday’s important speeches at the Jackson Hole Symposium. It now rather seems that traders remain absent or are again doubling down on the possibility of US Fed Chairman Jerome Powell announcing those long-awaited rate cuts. 

Patience is a virtue though, certainly in financial markets and trading. Traders that remained disciplined on Monday and Tuesday can get some clarity on what to do next as two of Fed speakers are to hit the wires. Some additional economic data points are due as well, namely Redbook, US Existing Home Sales and the Richmond Fed Manufacturing Index. These data could confirm the current retreat in the US Dollar Index and signal future trends. 

Daily digest: US Dollar at risk

• The US Redbook Index will be released at 12:55 GMT. The previous number was 0.7%.
• Existing Home Sales data will come out at 14:00 GMT.  Sales for July expected to slide marginally from 4.16M to 4.15M. 
• The Richmond Fed Manufacturing Index for August will come in together with the Existing Home Sales data. The index is expected to stay negative, from -9 to -7. 
• Michelle Bowman from the Fed will take the stage at around 18:30 GMT. Austan Goolsbee from the Federal Reserve bank of Chicago is set to speak around that same time. Any headlines might give an insight or prelude on what to expect from US Fed Chairman Jerome Powell on Friday. 
• The BRICS convention starts its second day in South Africa with the organisation welcoming nearly 20 new members. the major theme will be the discussion on dedollarization and the setup of a payment system between the nations. India and South Africa already came out opposing the idea of disregarding the US Dollar.
• Equities are up across the board, with both Japan and China up over 1%. European markets are taking over the positive sentiment and are flirting as will with 1% gains. US equity futures are all in the green and the fear gauge VIX index is sliding lower. 
• The CME Group FedWatch Tool shows that markets are pricing in an 85.5% chance that the Federal Reserve will keep interest rates unchanged at its meeting in September. 
• The benchmark 10-year US Treasury bond yield trades at 4.33% after touching  a new yearly high on Monday in late US trading. The bond market will be very sensitive to any news on Friday at the Jackson Hole Symposium. The whole US yield curve could move up or down depending on the speech from Fed Chairman Jerome Powell. 

US Dollar Index technical analysis: breaking lower

The US Dollar snaps its winning streak and heads lower in every major pair or cross. The move in the wake of the main event of Friday points to a few traders doubling down on the possibility of a surprise dovish announcement from US Fed Chairman Powell. The moves are looking exaggerated as well as less volume is being traded with most traders sidelined until the main event Friday.

On the upside, 104.00 is the level to reach. The high of Friday at 103.68 is vital and needs to get a daily close above it in order for the DXY to eke out more monthly gains. Should this US Dollar strength persist for the last part of this year, May’s peak at 104.70 could become the reality again.   

On the downside, several floors are likely to prevent a steep decline in the DXY. The first one is the 200-day Simple Moving Average (SMA) at 103.19, which already got broken this Tuesday morning. Passing below the 103.00 figure, some room opens up for a further drop. However, around 102.38 both the 55-day and the 100-day SMAs await to catch any falling knives.