New Focus: USD Fate Hangs on Core PCE Data

USD faces volatility as disappointing GDP data shakes market; Core PCE release holds the key to 2023 outlook.

In the wake of a disappointing US GDP report that left the greenback on shaky ground, the focus now turns to the crucial Core PCE data release later today, which could shape the trajectory of the US Dollar for the remainder of 2023.

Fundamental Backdrop: Dollar Index Seeks Recovery

The US dollar is attempting to recover from the previous day’s losses following lower-than-expected US GDP figures and a decline in Core PCE prices. Despite resilient jobless claims data, the greenback is down approximately 1.6% year-to-date. The Federal Reserve’s dovish shift in tone has triggered resistance from some officials against the market’s aggressive repricing of rate expectations, projecting a potential rate cut as early as Q1 2024. Analysts caution that such forecasts may be overly optimistic, leaving room for a potential upside risk for the USD.

Today’s focus lies on the Core PCE index, the Federal Reserve’s preferred measure of inflation. Projections for a lower reading could reinforce the current narrative. While durable goods orders and Michigan consumer sentiment may show improvement, the market will likely emphasize inflation metrics more. With no other significant economic data expected for the rest of the year, today’s numbers could set the tone for the final trading week 2023, with minimal volatility anticipated next week.

New Focus: USD Fate Hangs on Core PCE Data

Technical Analysis: Key Inflection Point for DXY

The daily DXY reveals a breakout from a recent symmetrical triangle pattern, with bearish pressures aiming to breach the long-term trendline support zone around the 101.74 swing low. This critical inflection point may provide insight into the short-term directional bias heading into 2024. The Relative Strength Index (RSI) indicates a bullish/positive divergence that could keep USD bulls in play.

Resistance Levels:

• 104.45/50-day moving average
• 104.00
• 200-day moving average
• Trendline support

Support Levels:

• 101.74
• 101.00

As traders brace for potential market movements in response to today’s Core PCE data, the USD outlook remains uncertain, and market participants are closely watching key technical levels for guidance in the final stretch of 2023.

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