US Dollar mildly weakens during Jerome Powell's testimony

• US Dollar slips slightly under impact of Jerome Powell's fresh words.
• Investors keenly await June’s CPI data release on Thursday for clear guidance.
• If CPI comes in soft on Thursday, USD is poised for further downside.

On Thursday, despite Powell's cautious stance at his visit to the House Financial Services Committee, the US Dollar (measured by the DXY index) saw minor downturns and fell to 105.00. Powell's reluctance toward immediate rate cuts and his hints at an ongoing assessment of data-driven indicators have kept the markets on edge.

Signs of disinflation in the US economic outlook have emerged, and the market confidence in the September rate cut remains strong. However, Federal Reserve (Fed) officials including Chair Jerome Powell continue to tread carefully, underlining their inclination toward data-dependent decisions rather than hastened action in implementing rate cuts.

Daily digest market movers: DXY down as markets continue assessing Powell’s sentiment

• Highlight of Wednesday were the words of Fed ChairPowell to the House Financial Services Committee.
• However, his testimony before the House did not provide any significant or fresh influences.
• Powell expressed the need to be watchful over the labor market, noting visible softening in the sector.
• He suggested that inflation might be moving toward lower levels but also mentioned his cautious optimism about it sustaining the 2% target. He also mentioned that he doesn't hold a specific inflation number pertaining to decisions on future cuts.
• Expectations from Thursday's Consumer Price Index (CPI) continue to be significant. Projections depict the headline sinking two tenths to 3.1% YoY, while core inflation is expected to stay steady at 3.4% YoY.
• Market sentiment indicates less than 10% chance of July rate cut, while betting odds for a September cut hover around 80%, according to the CME FedWatch Tool.

DXY technical outlook: Index sees some decline, DXY above 100-day SMA is a good sign

From a technical viewpoint, DXY seems to have slipped into a negative terrain, indicated by both the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) showing negative signs. Nevertheless, despite the minor setback on Wednesday, the DXY managed to stay above its 100-day Simple Moving Average (SMA), cushioning the impact of declines.

The subsequent support levels at 104.50 and 104.30 also continue to be staunch barriers against further drops. On the flip side, to regain momentum buyers must recover the 105.50 level to retest the 106.00 threshold.