US Dollar (DXY): Mixed Trade Ahead of US Bank Holiday, Fed Minutes

Highlights

• US dollar strengthens on improved economic indicators.
• Yen weakens as intervention speculation grows.
• Euro zone faces economic concerns with weakening factory activity.

Overview

The US dollar (DXY) saw a modest uptick ahead of the July 4 holiday, supported by recent economic data showing a slight easing in inflation and a slowdown in consumer spending. After registering a near 2% gain in the first half of the year, the dollar climbed 0.16% against a basket of currencies, reaching 103.11.

Yen Weakens as Intervention Speculation Grows

The Dollar/Yen surged to nearly eight-month highs on Monday as investors speculated that intervention by Japanese authorities was imminent. The yen, which touched its lowest level against the greenback since November, weakened by 0.37% to 144.86. Japan’s Finance Minister, Shunichi Suzuki, reinforced the possibility of taking appropriate measures to counter excessive yen weakening, adding to a series of comments from government officials. Market observers eagerly await Japan’s May wage growth data on July 7 for further insights.

Euro Zone Faces Economic Concerns

Fears of a global economic slowdown have been weighing on the euro, which started the third quarter with a 0.1% decline against the dollar, standing at $1.0897. Factory activity in China and the euro zone showed signs of weakening, fueling worries about economic growth. A private sector survey indicated a slowdown in China’s factory activity growth in June, while euro zone manufacturing activity contracted more than initially estimated. Investors have noted that the euro zone’s cyclical story appears to be losing momentum, potentially pushing the euro lower.

US Federal Reserve Meeting Minutes Awaited

Investors will closely watch the release of the minutes from the US Federal Reserve’s June meeting, scheduled for Wednesday. Although the central bank opted to keep interest rates unchanged, it hinted at the possibility of rate hikes by the end of the year. Positive economic data, including cooler-than-expected inflation in May and robust job growth, has reduced concerns of a potential recession. Currently, the market is pricing in a 90% chance of a 25 basis points rate hike during the Fed’s July meeting, according to the CME FedWatch tool. Further insights into the US labor market will be gained from the Labor Department’s JOLTS report and the monthly payrolls report, both due later this week.

Short-Term Outlook:  Supported by Improved Economic Indicators

In summary, the dollar strengthened amid improved economic indicators, including easing inflation and slower consumer spending. Speculation of intervention by the Bank of Japan caused the yen to weaken against the greenback. The euro faced headwinds due to concerns over weakening factory activity and a loss of economic momentum in the euro zone. Investors eagerly await the release of the US Federal Reserve meeting minutes for insights into potential future rate hikes.

Technical Analysis

The US Dollar (DXY) is currently experiencing bearish market sentiment. With the 4-hour price at 102.974, slightly lower than the previous close of 102.999, there is a downward trend. The 200-4H moving average stands at 103.334, and the 50-4H moving average is at 102.771, indicating bearish long-term sentiment and supportive short-term sentiment.  The 14-4H RSI is neutral at 50.53.

Support levels are identified between 101.930 and 102.113, while resistance levels are noted between 103.280 and 103.424. As the current price is below the main resistance area, the market remains bearish for the US Dollar (DXY). On the flipside, however, 103.424 is a potential trigger point for an upside breakout.