- The US dollar was trading sideways at the start of the US trading session.
- Reaction to the retail sales data was predictably limited.
- The US Dollar Index has fallen from its lows this year, albeit only slightly.
The US Dollar (USD) is trading sideways on Tuesday after falling all day due to selling pressure. The Federal Open Market Committee (FOMC) meets on Tuesday to discuss the Federal Reserve's (Fed) policy decision scheduled for Wednesday and the size of the Fed's first interest rate cut. After that, the market will finally hear Fed Chairman Jerome Powell's press conference.
On the economic data front, retail sales didn't bring much of a change. Most traders were gearing up for Wednesday's Fed meeting and were not expected to make any big moves. Retail sales came in roughly in line with expectations, with only minor revisions.
Daily Digest Market Trends: Closed until Wednesday
- August retail sales data did little to shake up the market. Monthly retail sales rose 0.1% after increasing 1.0% in July (revised to 1.1%). Sales excluding motor vehicles and transportation rose just 0.1% after increasing 0.4% in the previous month.
- At 13:15 GMT, industrial production data for August showed an unexpected rise to 0.8 percent after a 0.6 percent contraction in July.
- At 3:00 pm GMT, Dallas Federal Reserve Bank President Lori Logan delivered pre-recorded welcome remarks to the 11th District Bankers Conference in Dallas. Because the Federal Reserve is in a blackout period ahead of its Wednesday meeting, Logan is not scheduled to discuss monetary policy.
- The National Association of Home Builders (NAHB) released its September housing market index, which remained stable at 41, down from 39 in the previous month.
- European and US stock markets surged at the New York open, with all major stock indexes up more than 0.50%.
- The CME Fedwatch tool shows that the likelihood of the Fed cutting rates by 25 basis points (bps) on Wednesday has further decreased to 33.0% from 66% a week ago, while the market has increased the likelihood of a 50 bps cut to 67.0%. At the November 7 meeting, a further 25 bps cut (if the September cut is 25 bps) is expected with an 18.0% probability, while there is a 52.3% chance that rates will be 75 bps (25 bps + 50 bps) lower than current levels and a 29.7% chance that they will be 100 bps (25 bps + 75 bps) lower.
- The 10-year U.S. Treasury yield is trading at 3.64%, having so far recovered from a 15-month low.
US Dollar Index technical analysis: Rangebound until the final moments
The US Dollar Index (DXY) is defending the boundary it traded last month, almost the lowest price for the year. There is a very slight bounce on the chart, but it is not far from the lower limit. The risk is that the DXY could fall below the lower limit if the Fed cuts interest rates.
The top of the recent range is at 101.90. Further upside would require a 1.2% surge to take the index to 103.18, with the 55-day simple moving average (SMA) approaching 102.89. The next upside is very unclear, with the 200-day SMA at 103.81 and the 100-day SMA at 103.88, just short of the big round level of 104.00.
On the downside, 100.62 (December 28, 2023 low) is holding strong and has already seen the DXY bounce twice in recent weeks. If this level falls below, the next level to watch is the July 14, 2023 low of 99.58. If this level breaks, early 2023 levels could be near 97.73.
US Dollar Index: Daily Chart
