Dollar aims high on the back of T-yields

The US Dollar extended recovery to Wednesday, reaching 106.00, its highest level since early May. Rising US Treasury yields lent support to the US currency. Week’s highlight remains June’s PCE inflation data due on Friday.

Wednesday’s session witnessed the US Dollar, as represented by the Dollar Index (DXY), climb to 106.00, a level last observed in early May. The economic landscape in the US continues to portray resilience. A few signals of disinflation are noticeable, but it still holds on which makes the Federal Reserve (Fed) not fully embrace the easing cycle.

Wednesday’s standout data was the New Home Sales for May, which demonstrated a decline of about 11.3% to 619K units from 698K units in the prior release and beneath the 640K expected.

Simultaneously, US Treasury yields are rising, with the 2, 5 and 10-year rates reported at 4.74%, 4.33%, and 4.31%, respectively. Expectations of a potential Fed rate cut in September continue to be high, odds from CME Fedwatch Tool are 60% for 25 bps cut.
Thursday holds the Gross Domestic Product (GDP) revision for Q1, which is anticipated to hold steady at 1.3%.
Friday’s significant event will still be the May Personal Consumption Expenditures (PCE) report, an inflation gauge favored by the Fed.
Both headline and core PCE are projected to soften to 2.6% YoY, dropping from 2.7% and 2.8%, respectively, in April.

DXY, Technical Factors:

Bullish momentum continues, index aims high. The technical outlook remains solidly optimistic with indicators firmly in the green. The Relative Strength Index (RSI) preserves a level above 50, while green bars are developing in the Moving Average Convergence Divergence (MACD), suggesting a gathering of strength among bulls. The progressive incline of these indicators demonstrating that the DXY may be preparing for additional upside.


Furthermore, the DXY Index maintains a standing position above the 20, 100 and 200-day Simple Moving Averages (SMAs), confirming a persistently positive outlook. With the Index reaching levels not seen since early May and with indicators showing a propensity for further increment, the DXY is oriented toward further gains. The 106.50 level is the next target for bulls.