US Dollar Index outlook: Bears take a breather for limited correction ahead of key US data

US Dollar Index

The Dollar Index extends recovery into second straight day, lifted by short covering ahead of key supports at 100.29/21 zone (Dec 2023 low / 200WMA).

Oversold daily studies contributed to fresh rise, as stochastic and RSI emerged from oversold zone and bearish divergence of stochastic indicator signaled rebound in advance.

Bounce is likely to be a positioning for fresh push lower, as the dollar remains pressured by expectations for the first Fed rate cut in September, which was strongly signaled by the latest dovish comments from Fed’s Chair Powell.

Markets have fully priced in a 25 basis points cut, with rising bets for more aggressive action for 50 basis points cut, weighing on current recovery.

Key US economic data due today (Q2 GDP / Jobless claims) and on Friday (PCE price index, Fed’s preferred inflation measure) are expected to provide more information and contribute to Fed’s decisions in size and the pace of rate cuts.

The dollar index remains in a larger downtrend and is on track for the biggest monthly loss since November 2023, adding to likely scenario of limited correction, which should provide better levels to re-enter broader downtrend.

Technical picture remains bearish on daily chart (negative momentum / MA’s in bearish configuration), with cracked falling 10DMA (101.13) producing so far significant headwinds to recovery attempts and should ideally cap.

Stronger upticks, on the other hand should be limited under pivotal 101.95 barriers (falling 20DMA / former low of Aug 5) to keep larger bears intact for final attack at key supports at 100.29/00.

Res: 101.26; 101.50; 101.73; 101.95.
Sup: 100.78; 100.29; 100.00; 99.20.