US dollar strengthens, celebrates a winning week

Long-term gains are seen in the US Dollar DXY, which approaches 104.365 as sellers retreat. The USD may still be burdened by worries about the US labor situation. By the conclusion of the week, the US was benefiting from risk aversion.

Notwithstanding ongoing concerns over the job market, the US dollar as measured by the DXY index extended its upward trend on Friday, breaking through the 104.00 barrier and reaching 104.30. The market’s retreat into safe havens and the sellers’ easing off are to blame for this increase. Investor attention is primarily focused on two factors: the US labor market’s instability and market expectations of a rate cut by the Federal Reserve in September, which might put further pressure on the dollar.

The US economic outlook shows signs of disinflation, with financial markets remaining confident in a September rate cut. Despite this, Federal Reserve officials continue to exhibit hesitancy to hastily make interest rate cuts, sticking to a data-dependent approach.

The two key catalysts currently contributing to USD movements are the outlook for Fed policy and the US elections, each having different implications for the USD. This month, the USD has attached more attention to Fed policy predictions.

In recent weeks, anticipations of a September Fed rate cut have made the USD relinquish its position as the top-performing G10 currency this year, mainly due to the report of weak inflation and labor market data.

The CME FedWatch Tool seems to strongly support a rate cut in September, suggesting that a nearly full rate cut is firmly expected. DXY Technical outlook: Bearish outlook persists despite gains, must regain the 200-day SMA. The DXY successfully continued its rebound to around 104.30, but the outlook is still bearish with the index continuing to stand below its 200-day Simple Moving Average (SMA).

However, daily technical indicators, like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), have gained some steam despite still in negative terrain, signifying that bearish pressures are yet to disperse.

The solid support levels continue to lie at 103.50 and 103.00, however, the general technical outlook still favors the bears. Buyers on the other hand should focus on regaining the 200-day SMA at 104.30.