US Dollar trades flat after weak economic activity figures

• The DXY index first declined to 104.00 and then jumped back to 104.30.
• Jobless Claims accelerated in the first week of November, while Industrial Production from October disappointed. 
• The mix of the labor market cooling down and inflation retreating is making investors believe Fed rate hiking cycle is over.

The US Dollar (USD) traded flat on Thursday and rotated within the 104.00 to 104.30 range. The USD remains pressured as markets place additional bets on the Federal Reserve (Fed) being less aggressive than expected after weak Jobless Claims and Industrial Production figures from the US.

The United States economy is showing signs of cooling down with a weakening labor market and inflation retreating, which makes it highly unlikely that the Federal Reserve (Fed) will raise interest rates at the upcoming December meeting. That being said, the bank will receive additional CPI and Nonfarm Payrolls reports before its last decisions of 2023, which could impact whether they ultimately decide to hike or not.

Daily Digest Market Movers: US Dollar struggles to gather momentum after weak data

• The US Dollar Index recovered to 104.30 from a low of around 103.98 and stands at its lowest point since September.
• During the week ending November 11, the number of US Initial Jobless Claims increased to 231,000, surpassing the predicted 220,000.  
• The Philadelphia Fed Manufacturing Index slightly improved, reaching -5.9 instead of the expected -9 points. 
• Industrial Production in the United States fell short of expectations, experiencing a 0.6% MoM decline, higher than the -0.3% expected. It also tallied a year-on-year decrease of 0.7%.
• US Treasury yields extended their decline, with the 2-year rate increasing to 4.86%, while the 5 and 10-year rates rose to 4.43% and 4.43%, respectively.
• According to the CME FedWatch Tool, the odds of a 25-basis-point hike in December are zero. Markets are betting on rate cuts appearing sooner than expected in May 2024, if not March.

Technical Analysis: US Dollar bulls do battle and defend 100-day SMA

The daily chart suggests that the DXY has a neutral to bearish technical outlook, with bulls having lost significant ground this week and struggling to gather momentum. The Relative Strength Index (RSI) points south below 50, while the Moving Average Convergence Divergence (MACD) histogram exhibits larger red bars.

Zooming out, despite the bears gaining ground and pushing the index below the 20-day Simple Moving Average (SMA), the bulls are defending the 100-day average, indicating that if the sellers fail to conquer it, the outlook will still be positive in the larger context.

Support levels: 104.15 (100-day SMA),103.60 (200-day SMA), 103.30.
Resistance levels: 104.50, 105.00,105.30.