This week, there are signs of a potential shift in the strong dollar trend that has been ongoing since July. The Dollar Index has fully dipped below its 10-day moving average and is challenging the support levels of its 21-day and 200-day moving averages. This suggests that the short-term uptrend that has lasted for about a month and a half might be showing signs of exhaustion.
Additionally, the economic indicators released this week have been consistently weaker. A significant Dollar sell-off reaction was observed on the 29th due to the decline in the US JOLTS Job Openings data. The actual result of 8.827 million fell short of the estimated 9.5 million. This led to a rapid 2-yen drop in USDJPY. The weakness in the Conference Board Consumer Confidence Index on the same day further intensified the Dollar sell-off. The ADP Employment Report released yesterday showed an increase of only 177,000 jobs, falling below the market estimate of 195,000. Although the previous figure was revised upward from 324,000 to 371,000 jobs, the Dollar still experienced selling pressure. The US GDP Revised Estimate for the second quarter was also downwardly revised from the preliminary 2.4% to 2.1% annualized growth rate. This was attributed to weakened private investment.
Beyond the Dollar-related factors, inflation concerns have rekindled in Europe. Persistently high German consumer prices and a resurgence in Spanish consumer price index have slightly increased speculation of additional ECB rate hikes, resulting in a Euro buying trend and subsequent Dollar selling.
It remains unclear whether price movements or data releases will take the lead, but the current situation appears to be pushing for Dollar sell-offs from both sides. The anticipated buying factors for the Dollar have largely exhausted after the passage of Fed Chairman Powell’s highly anticipated speech. However, the pressure for a trend might not materialize without further material influences.
With the pending release of tomorrow’s US employment statistics, today will see the release of US Personal Income and Spending for July, US PCE Deflator for July, Initial Jobless Claims for the week ending August 26th, and the Chicago Purchasing Managers’ Index (PMI) for August. The market is particularly attentive to the US PCE Deflator, as expectations lean towards a resurgence in inflation. Of course, if the actual growth falls below expectations, a strong Dollar sell-off is anticipated, but careful observation of the results is essential.
Considering that the US economic indicators have consistently fallen short of expectations, a significant USD sell-off reaction can be expected if today’s PCE Deflator data also falls below expectations.
