US Dollar steadies as markets head back into risk-on mood

• The US Dollar trades mixed against its most major peers on Tuesday. 
• Markets are going back into risk-on, picking up the drive from past Friday, as tensions in the Middle East ease somewhat. 
• The US Dollar Index trades sideways, just below 101.00. 

The US Dollar (USD) trades mixed on Tuesday’s European session, halting the mild recovery seen on Monday, with only one pattern on the quote board to retain. The US Dollar is up against most major Asian currencies such as the Japanese Yen (JPY) and the Korean Won (KRW). The risk-on mood seems to have returned to markets – with equities in the green across Asia, Europe, and US futures – as safe-haven flows retreat amid easing hostilities in the Middle East. 

On the US economic calendar front, the Housing Price Index for June will be the main event to look at. the second element will be the Consumer Confidence Index for August. After the stellar Durable Goods Orders numbers from Monday, the Consumer Confidence Index should also head higher. 

Daily digest market movers: Look out for pivotal data

• The US session kicks off with the Redbook Index for the week ending August 23, to be published at 12:55 GMT. The previous reading was at 4.9%.
• The Housing Price Index will be released at 13:00 GMT. The previous number showed prices remained unchanged, and a slight 0.2% uptick is expected for June. 
• At 14:00 GMT, the Consumer Confidence Index for August will be released. the previous number was at 100.3, and economists forecast it to increase slightly to 100.9. 
• Also at 14:00 GMT, the Richmond Fed Manufacturing Index for August will be released. An uptick is expected, from -17 to -14. 
• Equities in Asia and Europe are overall up on the quote board. US futures are taking over the positive tone and are up by less than 0.5%.
• The CME Fedwatch Tool shows a 71.5% chance of a 25 basis points (bps) interest rate cut by the Fed in September against a 28.5% chance for a 50 bps cut.  Another 25 bps cut (if September is a 25 bps cut) is expected in November by 50.2%, while there is a 41.3% chance that rates will be 75 bps (25 bps + 50 bps) below the current levels and a 8.5% probability of rates being 100 (25 bps + 75 bps) basis points lower. 
• The US 10-year benchmark rate trades at 3.82%, a fresh weekly high.

US Dollar Index Technical Analysis: If the recovery already stalls now

The US Dollar Index (DXY) saw a substantial move lower last week, snapping several important support levels, as markets are pricing in aggressive Fed rate cuts by November. The recovery from Monday was already a good start, seeing that markets might have exaggerated their assumption on how big and how many cuts the Fed will actually perform. However, the DXY has not been able to recover that much, which means incoming data will become pivotal. Any strong data might trigger a tipping point that could fuel a rally in the DXY if markets start to price out cuts. 

For a recovery, the DXY faces a long road ahead. First, 101.90 is the level to reclaim. A steep 2% uprising would be needed to get the index to 103.18 from the current 101.00.  A very heavy resistance level near 104.00 not only holds a pivotal technical value, but it also bears the 200-day Simple Moving Average (SMA) as the second heavyweight to cap price action.

On the downside, 100.62 (the low from December 28) tries to hold support, although it looks rather feeble. Should it break, the low from July 14, 2023, at 99.58 will be the ultimate level to look out for. Once that level gives way, early levels from 2023 are coming in near 97.73.

US Dollar Index: Daily Chart