USD Index Set to End the Week Lower As Core PCE Price Index Drops

The USD Index (DXY) looks set to end the week lower after the Fed’s key inflation metric registered lower on a monthly basis. The Core PCE Price index fell from 0.7% to 0.5% (consensus 0.6%). The University of Michigan Consumer Sentiment Index also fell from 86.4 to 85.5. The market had expected a slight increase to 86.5.

The downbeat data set put the USD Index under pressure, even as long-term bond yields remained muted below 1.50%.

As one member of the Fed’s Governing Board after another walk back on the FOMC’s 16 June hawkish statement, the USD index finds itself running out of upside momentum. Further improvement in risk sentiment also stems from the recent infrastructure stimulus worth $579 billion, agreed to by both sides of the US Congress.

This leaves the DXY trading lower by 0.22% on the day and 1.07% this week.

Technical Levels to Watch

The USD Index is now aiming for the 91.50 support level, which has supported the price the entire week. A breakdown of this support brings 91.26 into the picture, along with 90.96 and 90.50 if the decline is extensive. 

On the other hand, a bounce off the 91.50 price level with an upside extension above the highs of Wednesday and Thursday allow 92.00 to become the near term upside target. A continued advance beyond this point brings in 92.50 (9 March high), even though the 12/13 April high of 92.32 could be an intervening barrier. 

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USD Index: Daily Chart

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