Dollar Heading Lower

The US Dollar is starting the week on a negative footing with the Dollar Index seen testing new monthly lows. With plenty of US data/event risk this week, this initial weakness reflects caution among investors as they mull the risk of a fresh move lower. US PMIs, the July FOMC minutes and a slew of Fed speakers, including Powell’s Jackson Hole comments, will be key focus points for traders over the week ahead.

Easing Expectations & Recession Risks

Last week, better-than-forecast US retail sales took the focus away from recessionary fears, driving a rebound across risk assets. The subsequent tide of safe-haven outflows saw USD coming under pressure as trader chased better returns elsewhere. Additionally, on the back of yet a further inflationary fall (July CPI now down at 2.9%), near-term Fed easing expectations remain well entrenched.

Bearish Risks

Looking ahead this week, the July FOMC minutes look likely to add to bearish sentiment in USD. In particular, traders will be keen to see how much appetite there is among policymakers for multiple cuts this year. Following that, focus will then be on Powell’s comments later in the week. Along with Powell’s assessment of inflation and the likely rates outlook, traders will also be sensitive to any comments regarding recessionary risks.

Technical Views

DXY

DXY continues to trend lower. Following a brief recovery last week, the index is now testing below the 102.46 level and the bull trend line. With momentum studies bearish, focus is on a further push lower here and a test of 100.93 next.