US Dollar Index sees an imbalance below 101.70 as risk-off impulse fades, US PCE in focus

• The DXY is declining to re-test its monthly lows at 101.65 on positive market sentiment.
• Underperformance in the DXY is backed by weak GDP and stable PCE.
• US NFP will remain the major economic event next week.

The US dollar index (DXY) is moving gradually lower to re-test its monthly lows at 101.65 as the risk appetite of the market participants has improved firmly and safe-haven assets are losing their appeal. The DXY attempted to surpass its crucial resistance at 102.40 but found strong barricades that dragged the asset below 102.00. The sheet volatility increment in the DXY is compelling for more downside, which could drag the asset lower. A decisive slippage below Tuesday’s low at 101.65 will expose the asset to fresh monthly lows.

Flat US PCE and underperformance from GDP

A responsive selling action in the DXY on Thursday is backed by more weakness in the Gross Domestic Product (GDP) numbers and Personal Consumption Expenditure (PCE) figures. The annualized GDP has been recorded at -1.5%, lower than the expectations and the prior print of -1.3% and -1.4% respectively. Lower GDP numbers have raised concerns about the economy’s growth prospects. Apart from that, the PCE remained stable at 7%, which is indicating that the inflationary pressures are finding an anchor now.  This signals that a peak in price pressure is not so far, which has dampened the demand of the DXY.

Key events next week: Consumer Confidence, ISM Manufacturing PMI, ADP Employment Change, Initial Jobless Claims, Nonfarm Productivity, Nonfarm Payrolls (NFP), Unemployment Rate, and ISM Services PMI.

Major events next week:  European Union (EU) Leaders Summit, Bank of Canada (BOC) interest rate decision.