The US Dollar Index fell heavily on Friday as the markets absorb the impact of what is now seen as a dovish FOMC announcement by the Fed Chair Jerome Powell. The downbeat Chicago PMI number is also contributing towards bearish action on the DXY as yet another bearish close to the week’s action beckons.
The US Dollar Index is currently trading at 92.37, off intraday lows of 92.20 as the asset sold off massively as Powell announced a new inflation targeting protocol that would see the Fed willing to do a “moderate overshoot” above the current 2% inflation target. The Dallas Fed Reserve Bank President Robert Kaplan has said he is comfortable with an overshoot to 2.25% – 2.50%, meaning the Fed could be more accommodating of an inflation target that exceeds its previous hard target of 2% before being inclined to tighten policy. The markets have interpreted this to mean that rates may stay lower for a lot longer; a dovish policy stance.
The downside on the USD Index followed the release of the headline Personal Consumption Expenditure (PCE) price index, which rose 0.3% month-over-month in July and by 1.0% on an annualized basis. The core component was up by 0.3% and 1.3% on a monthly and annualized basis. The figures were lower than market expectations.
The Chicago PMI also dropped from 51.9 in July to 51.2 in August, further compounding the woes of the US Dollar Index.
Technical Outlook for US Dollar Index
The DXY is challenging the 92.50 support and needs a second daily close above this level to complement a possible lower close below support today to produce a confirmed breakdown. This scenario would allow the DXY to aim for 91.91, thus sending the USD Index Below the 92.00 mark for the first time since January 2018.
On the flip side, failure to confirm the breakdown of 92.50 allows the US Dollar index to attempt a recovery towards 93.17, with 93.80 and 94.62 looking like possible upside targets if the channel’s return line gives way to bullish pressure.
However, the sentiment on the DXY is bearish at this time, and any recovery moves could provide opportunities to sell on rallies.