US Dollar recovers while political factors weigh in

• US Dollar DXY kicked off the week with a slump after a brief rebound at the end of last week but managed to clear daily losses.
• The anticipated exit of President Joe Biden from the presidential race invigorates investors' risk appetite which might limit the upside.
• Dovish Fed expectations might also present a challenge to the green currency.

As the week opened, the US Dollar, measured by the DXY index, exhibited a decline towards the 104.30 area and then recovered to 104.40. US President Joe Biden's expected departure from the presidential race has favored former President Donald Trump, and this upheaval has spurred investors to lean towards riskier assets. Complementing this, the expectation of a dovish stance from the Federal Reserve continues to present challenges to the Greenback. Further indicators to look out for during the week are the Gross Domestic Product (GDP) Q2 revisions and Personal Consumption Expenditures (PCE), which are widely anticipated to add an element of volatility in the USD.

Although the US economy is indeed showing early signs of disinflation, market confidence in a favorable September rate cut from the Federal Reserve remains steady. Even so, Fed officials express a strained demeanor and emphasize the importance of adhering to a data-dependant approach before rushing into any hasty interest rate reductions.

Daily digest market movers: DXY has a bumpy ride due to Fed policy outlook and impending US elections

• The outlook for the Fed's policy and the unsettled politics of the US election continue to be the two major catalysts driving the USD's trajectory.
• As former President Trump becomes the favorite, after Joe Biden’s extir, investors will focus on three broad areas: immigration, tariffs, and fiscal policies. So markets will keep an eye on Trump’s hints about its economic plans.
• The CME FedWatch Tool sheds light on the widespread anticipation about the September rate cut as investors are pricing in a 25 bps cut.
• The upcoming GDP and PCE data are likely to shape the USD dynamics for the week ahead as they will guide markets on the next Fed moves.

DXY Technical outlook: Bearish signs persist despite attempts to rise above 200-day SMA

The DXY index might have tallied minor gains last week, but the bearish outlook remains unchanged, primarily as the index faces a tough time ascending above the 200-day Simple Moving Average (SMA) at 104.30. The bearish stance is further supported by the daily indicators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), which remain in negative area, suggesting a continuation of downside momentum.