US Dollar trades lower despite strong S&P PMIs

• US Dollar trades lower despite strong S&P PMIs
• The DXY Index took a downturn toward 103.05, below the 200-day SMA.
• US January S&P PMIs came in better than expected.
• All eyes are on Thursday’s PCE figures from December.

The US Dollar (USD), as expressed by the DXY Index, faced downward pressure falling towards 103.05. However, the USD’s losses may be capped by the report of strong economic activity figures, which may push investors to delay their rate cut expectations. Personal Consumption Expenditures (PCE) figures on Thursday will dictate the pace of the short term.

The US economy is maintaining its robustness as traders await key data and central bank meetings later this week. Despite a lack of major data or any Fed speakers, the market pushed back its easing expectations to roughly 125 bps over 2024, down from nearly 175 bps earlier this month, which has helped the Greenback recover. 

Daily Digest Market Movers: US Dollar loses traction as markets digest S&P PMIs

• The S&P Global Composite PMI released by S&P Global has posted 52.3 for January, surpassing the previous figure of 50.9.
• The Manufacturing PMI stood at 50.3 for January, reported by S&P Global, surpassing the previous and consensus figure of 47.9, indicating a solid growth in manufacturing activities.
• The Services PMI significantly beat the previous figure of 51.4 and consensus of 51 to settle at 52.9, highlighting a robust expansion in the services sector.
• For the Federal Reserve (Fed) these figures may present a threat to their battle against inflation, which could make them delay the start of the easing cycle.
• Projections from the CME FedWatch Tool show that the market's expectations for the start of the easing cycle have shifted to May as the odds of a cut in March now stands near 42%.
• Those odds may change after the US releases December’s Personal Consumption Expenditures (PCE) figures, the Fed’s preferred gauge of inflation, on Thursday.

Technical Analysis: DXY bulls struggle to hold ground as bears takes center stage

The indicators on the daily chart are reflecting moving dynamics. A downturn can be seen in the Relative Strength Index (RSI), Despite being in positive territory, the negative slope indicates that the buying momentum has been losing strength. 

The Moving Average Convergence Divergence (MACD) also aligns with this outlook. The decreasing green bars on the MACD histogram highlight the weakening of bullish momentum. 

Looking at the Simple Moving Averages (SMAs), the index is straddling a key transitional area. Its ability to remain above the 20-day SMA suggests that the buyers still dominate the short term. That being said, the index is below the 100 and 200-day SMAs, a clear indication that the longer-term trend still favors the bears. 

Support Levels: 103.00, 102.80, 102.60 (20-day SMA).
Resistance Levels: 103.50 (200-day SMA),103.70, 103.90.