Before crucial US data, US dollar nearing its breaking point.

Bulls in the US dollar are hiding at a key support level.
In the following few days, the Dollar is expected to encounter weekly negative mood resulting in a bullish correction with the 38.2% Fibonacci target positioned around 103.10.

The Fed’s intentions and awaited US data will be crucial in determining the dollar’s next moves. The US dollar has been under pressure this week in the run-up to important US data events on Thursday, but investors will be cautious about making any changes before the Fed and ECB meetings on Thursday and next week. The Dollar Index DXY is now trading lower by about 0.25% and has moved between the 102.118 high and the 101.576 low.

Significant US Data Eyed

The US dollar experienced a temporary surge earlier in the week as a result of the S&P Global publishing first January PMI results. The December readings for the Manufacturing PMI was 46.8, the December reading for the Services PMI was 46.6, the December reading for the Composite PMI was 46.6, and the December reading for the Manufacturing PMI was 46.0. This means that the ISM PMI figures due out next week may increase somewhat.

While the US Core PCE prices are due at the same time as the US Commerce Department’s official advance fourth-quarter GDP estimates, the latter is expected to increase to a 0.3% moM pace in December.

However, a 0.4% growth cannot be completely ruled out. The YOY rate probably slowed to 4.5%, showing prices continue to decline but remain sticky at high levels. Analysts also look for GDP growth to have maintained solid in Q4, producing another above-trend gain. Strong consumer and inventory showings most certainly contributed to growth.

Monetary Policy Forecast

As for the Fed, the markets are pricing in a dovish outcome for the upcoming months. US stocks have benefited, as have higher-quality currencies, which are also benefiting from some domestic data items. The central banks’ mood and convergence have been working together to push the dollar lower in 2023.


Although US inflation indicators have decreased, some economists pointed out that the labour market is still extremely hot. The nonfarm payrolls, which are released in the coming days at the beginning of every new month, are expected to total 175k in January.

A 25 bp increase on February 1 is widely anticipated, according to WIRP, with less than 5% probability of a greater 50 bp move. While a final 25 bp increase in Q2 is just 35% priced in, a further 25 bp increase on March 22 is nearly 80% priced in. These chances seem too little. Additionally, the swaps market continues to predict an easing cycle by year’s end, which would not occur.

US dollar still susceptible to market conditions

Until market sentiment, if at all, shifts back to a more hawkish Fed, the US Dollar is likely to remain weak. The importance of tomorrow’s data is due to this. The following technical analysis shows how any release that on February 1 indicates more toward 25 than toward 50bp would likely be the final straw for the DXY index, which is balanced insecurely on the precipice of disaster. However, given that the market has already cut its expectations with regard to the next rate step by the Fed, it might take a particularly outsized result in the data to actually alter gears.