US Dollar flat ahead of PMI numbers

• The US Dollar devalued nearly 2% since Wednesday against most peers. 
• Traders could see a small turnaround on the back of PMI data.
• The US Dollar Index trades near 101.92, a fresh four-month-low.

The US Dollar (USD) got struck by lightning on Wednesday during the last US Federal Reserve (Fed) rate decision for 2023. The Greenback did not get any relief on Thursday either after the European Central Bank (ECB) sent another batch of lightning strikes towards the Greenback. The fact that the Fed has openly committed to rate cuts in 2024, while the ECB kept its lips sealed and even said rate cuts were not even discussed, means a seismic shift in monetary policy between the two continents  on either side of the Atlantic Ocean. 

On the economic front, some relief could be in the pipeline for the much-battered US Dollar. Traders are looking towards the US Purchase Managers Index (PMI) numbers to get more insights. Should most or all PMI measures per sector recover back above 50, that would mean that on the economic front, the US would be outpacing Europe where all PMI’s have been in contraction for a few months already.  

Daily digest: Time to digest what just happened

• Near 13:30 GMT this Friday’s calendar kicks off with the New York Empire State Manufacturing Index for December. Previous was at 9.1, it is expected to fall to 2.0.
• At 14:15 GMT the US Capacity Utilization and Industrial Production data for November will be released. Capacity Utilization is expected to head from 78.9% to 79.1%. Industrial Production is expected to go from -0.6% to a positive 0.3%.
• Just ahead of the US opening bell, traders will brace for the Preliminary Purchasing Managers Index numbers at 14:45 GMT. 
  • Manufacturing PMI for December is expected to head from 49.4 to 49.3.
  • Services PMI for December to head from 50.8 to 50.6.
• After the sluggish end for US equities on Thursday, Asian equities are roaring, with Hong Kong’s Hang Seng leading by 2.50%. European equities are just up a touch. US Futures are heading higher by a few percentage points.  
• The CME Group’s FedWatch Tool shows that markets are pricing in a 85.5% chance that the Federal Reserve will keep interest rates unchanged at its January 31 meeting. Around 14.5% expect the first cut already to take place.
• The benchmark 10-year US Treasury Note trades near 3.92%, the lowest in over four months.

US Dollar Index technical analysis: The Fed was an open book and got punished

The US Dollar has had a melt down when looking at the past two performances, with at one point more than 2% losses in the US Dollar Index. The Fed has put its cards on the table with its Dot Plot projections, forced to show its hand as it would lose credibility if it didn’t. Look for European data to deteriorate further, should the ECB truly commit to keep rates unchanged throughout 2024, while the Fed is ready to provide oxygen to its economy, which investors will applaud in the long run. 

The DXY US Dollar Index is facing a tough recovery with several resistances added in its downturn this week. First level to try and recover is 102.44, the low of November 29th. If US Dollar bulls are able to close and open above that level, and preferably even test the level for support, the next upside level to watch is 102.95 (ahead of 103.00) and 103.51 at the 200-day Simple Moving Average. 

To the downside, the DXY is positioned near the next pivotal 101.70, the low of August 04 and 10. Once broken, look for 100.82 to try and catch the falling knife with the bottoms from February and April. Should that snap, nothing will stand in the way of DXY heading to the sub 100 region.