The US Dollar stabilizes after big rally
The US Dollar has regained stability following a significant rally and is now awaiting the next market event that could potentially influence its trajectory. Discussions about the US debt ceiling are ongoing, with President Biden mentioning the possibility of a spending freeze and firmly denying the occurrence of a default. Currently, the US Dollar Index is holding just above the 104 mark and eagerly anticipating the release of US macroeconomic data, which will provide valuable insights for traders. President Biden has provided additional details about the ongoing debt-ceiling talks, assuring the public that there will be no default under his leadership.
In terms of macroeconomic data, a substantial amount of crucial information is about to be released, which could greatly impact the markets. At 12:30 GMT, the Personal Consumption Expenditure (PCE) inflation figures, both core and overall, for monthly and yearly performances, will be published. These figures have the potential to influence market expectations regarding the Federal Reserve's interest rate decision in June, making them significant for US Dollar traders.
Simultaneously, data on Personal Spending and Income, as well as Durable Goods Orders and Inventories, will be made available. The University of Michigan is also scheduled to release its May Final reading for Consumer Sentiment and Inflation Expectations, adding to the pool of macroeconomic data that could shape movements in the US Dollar, Treasury yields, and other assets.
US Credit Default Swaps (CDS) have slightly eased, reaching 163.875 after reaching a peak of 165.83 on Thursday. The highest peak occurred last week on Monday when concerns about a default were at their highest. Fitch has placed Fannie Mae and Freddie Mac ratings on watch, indicating a potential review.
The U.S Dollar on Wednesday
As of Wednesday, the US Treasury Cash balance has dropped to $49.5 billion. US equity futures are showing mixed to unchanged trends at the beginning of Friday, while the Chinese Hang Seng Index closed nearly 2% lower. According to the CME Group FedWatch Tool, the markets are currently pricing in an 82% chance of a rate hike in July, and even June now has a 41% chance of a hike. The data being released this Friday could solidify the possibility of a rate hike in July and increase the likelihood of a hike in June to over 50%.
The benchmark 10-year US Treasury bond yield is currently trading at 3.79% and remains steady after briefly reaching 3.82%. Further guidance from the data released later on Friday will help determine its future direction.
Regarding technical analysis of the US Dollar Index, the recent surge has pushed it above both the 55-day and 100-day Simple Moving Averages (SMA) at 102.43 and 102.85, respectively. The US Dollar's status as a safe-haven currency continues to attract interest in the DXY, and although it briefly broke the 104 level on Thursday, it has slightly eased as the debt-ceiling negotiations progress.
Looking ahead, the long-term target for the US Dollar Index is still set at 105.73 (200-day SMA), while the next significant resistance level is at 104.00 (psychological and static level), which serves as a transitional point.
On the downside, the 102.85 level (100-day SMA) serves as the initial support level that could confirm a change in trend. If this level is breached, it will be crucial to observe. how the DXY reacts at the 55-day SMA at 102.48 in order to assess any further upward or downward movements.