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US Dollar Pauses: Fed Moves and China Concerns Reviewed

US Dollar Pauses: Fed Moves and China Concerns Reviewed

US Dollar pauses prompt market review of Fed actions and China concerns. This raises the question: Will the USD experience a decline?

  • Weakening data spurred optimism among equity bulls, undercutting the US Dollar.
  • China’s favorable PMI numbers counterbalance ongoing concerns within the property sector.
  • The current market focus on data raises uncertainty about the potential USD decline.

USD’s Recent Stabilization

As the week progresses, the US Dollar has found stability after unsettling overnight data suggested potential challenges for the US economy. The second-quarter annualized GDP was revised to 2.1% from 2.4%, while the ADP employment report revealed a lower-than-expected addition of 177k jobs in August, compared to the anticipated 195k.

Interestingly, this seemingly negative news has sparked speculation that the Federal Reserve might adopt a less aggressive approach in its monetary policy settings, potentially benefitting the equities market. Notably, Wall Street rebounded from early losses to achieve modest gains, with the Nasdaq leading the way with a 0.54% increase. Futures indicate a relatively calm beginning for the upcoming cash session.

Mixed Market Performance

Across the Asia-Pacific region, stock markets displayed mixed performances. Australian and Japanese indices experienced slight gains, while mainland China and Hong Kong faced marginal losses. Of note, Country Garden, a significant player in China’s property sector, disclosed further challenges, signaling the possibility of a debt default due to a substantial $7 billion loss in the first half of the year.

Despite China’s official manufacturing PMI for August exceeding estimates by printing at 49.7 (compared to the anticipated 49.2), concerns related to the property sector still loom large.

Global Indicators and Technical Insights

In Japan, July’s month-on-month industrial production figures disappointed with a -2.0% reading instead of the expected -1.4%. Consequently, the USD/JPY pair temporarily dropped to 145.75 before recovering above 146.

Notably, crude oil prices have maintained recent gains, with the WTI futures contract surpassing $81.50 per barrel, while the Brent contract approaches $86 per barrel. Meanwhile, spot gold retains its value above $1,940.

Looking ahead, the release of Euro-wide CPI data will precede US jobless claims data, potentially influencing market sentiment.

DXY (USD) Index Technical Analysis

In terms of technical analysis, the DXY (USD) index has stabilized after a 3-day decline and breaching an ascending trendline. Support levels are anticipated at 102.58 (38.2% Fibonacci Retracement level), and around 102.00 (50% retracement). Additionally, the 55- and 100-day simple moving averages (SMA) could offer support in the 102.35 – 102.50 range.

On the upside, resistance may manifest near the 10-day SMA at 103.57, which aligns with a historical breakpoint. Higher-up, resistance zones include the prior peak levels at 104.45 and 104.70.

In conclusion, the US Dollar’s pause amidst reassessed Fed moves and China’s economic landscape prompts speculation about potential USD trends. Market dynamics, data-oriented focus, and technical indicators contribute to the complex picture of the USD’s future trajectory.

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