US Dollar Pauses Following PCE Ahead Of Thanksgiving

The US Dollar embarked on a brief respite ahead of the Thanksgiving holiday, with its recent rally pausing after the release of key economic data. While the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, came in line with expectations, it did little to alter market sentiment.

A Post-PCE Market Reaction: A Closer Look

The PCE data release, while important, failed to significantly shift market expectations. Both the headline and core PCE figures aligned with analysts’ forecasts, reinforcing the belief that the Fed may opt for either a rate cut or a pause in its tightening cycle at the December meeting.

However, a deeper dive into the data reveals some nuances. While the headline PCE inflation rate cooled slightly, the core PCE, which excludes volatile food and energy prices, remained elevated. This suggests that underlying inflationary pressures may still be persistent, which could complicate the Fed’s decision-making process.

The market’s reaction to the data was muted, with equities and the US Dollar trading sideways. This subdued response can be attributed to several factors, including:

Thanksgiving Holiday: The shortened trading week ahead of Thanksgiving limited market activity and reduced the impact of the PCE data.

Muted Economic Data: While the PCE data was in line with expectations, other economic indicators, such as Durable Goods Orders, were weaker than anticipated. This mixed bag of data may have contributed to the market’s indecision.

Fed’s Future Path: The market remains uncertain about the Fed’s future policy direction. While a rate cut or pause is increasingly likely, the potential for further tightening cannot be entirely ruled out. Geopolitical tensions, especially those related to the ongoing Russia-Ukraine conflict and China-US trade disputes, could also influence the Fed’s decision-making.

Technical Outlook for the US Dollar: A Chart-Based Analysis

From a technical perspective, the US Dollar Index (DXY) has formed a potential double top pattern around the 108.07 level. This suggests that the recent rally may be losing momentum.

Support Levels:

• 106.52
• 105.53
• 104.00 (200-day SMA)

Resistance Levels:

• 108.07
• 109.00
• 109.36

A Fork in the Road for the Dollar

If the DXY breaks below the 105.53 support level, it could signal a more significant decline. However, a move above the 108.07 resistance level could reignite the bullish trend.

The US Dollar’s recent rally has paused ahead of the Thanksgiving holiday. While the PCE data did not significantly alter market expectations, the overall economic outlook remains uncertain. Traders should monitor key economic indicators, Fed speeches, and geopolitical developments for clues about the Dollar’s future direction.

A key question remains: Will the Fed opt for a rate cut, a pause, or even a surprise rate hike? The answer to this question will have significant implications for the US Dollar and global financial markets. As we head into the new year, it is crucial to stay informed and adapt to evolving market conditions.