US Dollar starts the week on the defensive, markets await PCE inflation data

• The DXY Index is witnessing mild losses after concluding its weakest week in over a month.
• US PCE inflation report and housing data are next on the investors' radar.

The US Dollar (USD) took a slight downturn in the early part of the week, bracing itself before the release of the Personal Consumption Expenditures (PCE) Price Index data on Friday, which is the Federal Reserve (Fed) preferred gauge of inflation. Inflation figures will give additional insights to investors to continue placing their bets on the next Fed decisions. The US Dollar Index is trading at the 102.50 area, 0.1% down on the day.

In the last 2023 meeting, the Fed's dovish stance emerged, with officials forecasting 75 bps of rate cuts for 2024, recognizing that inflation is softening, which fueled risk on flows that significantly pushed the DXY downwards. However, markets may be overhyped with the dovish surprise, as the bank may consider delaying cuts if inflation remains sticky, so Friday’s figures will be important.

Daily Market Movers: US Dollar remains weak on the back of the Fed’s dovish surprise

• The US Dollar experienced mild losses as the week kicked off, with traders awaiting the release of the PCE Price Index data.
• The US will report mid-tier housing figures on Tuesday and Wednesday that may impact Greenback’s price dynamics.
• The Q3 Gross Domestic Product final revision is due on Thursday.
• In the meantime, US bond yields are trending upwards, with the 2-year yield at 4.44%, the 5-year yield at 3.95%, and the 10-year yield at 3.95%, which may limit the downside of the US Dollar.
• The CME FedWatch Tool insights indicate that markets are considering possible rate cuts by March 2024.

Technical Analysis: DXY index shows a bearish short-term outlook, sellers maintain control

The indicators on the daily chart reflect a stronger selling momentum on the DXY. The Relative Strength Index (RSI) is in negative territory with a downward slope, indicating an inherent bearishness in the index. The red bars of the Moving Average Convergence Divergence (MACD) further confirm this bearish momentum.

The position of the index with respect to its 20, 100, and 200-day Simple Moving Averages (SMAs) also highlights the continuing dominance of the bears. The DXY trading beneath all these SMAs implies a strong downward bias, affirming the bearish undertone.

Support levels: 102.00,102.30, 101.50.
Resistance levels: 103.45  (20 and 200-day SMA bearish crossover), 104.60 (100-day SMA), 104.80.