USD Selling Pauses

The US Dollar failed to continue the breakdown we saw on Tuesday as better-than-forecast retail sales data yesterday helped stem the selling. While still very weak at 0.1%, down from 0.8% prior, given that the data was marginally better than the -0.1% forecast, bulls were able to hang on. Empire state manufacturing was more convincingly bullish yesterday, with the index printing 9.1 against -4.6 prior and -3.3 expected and so, for now at least, the US Dollar unwind has paused.

Shifting Fed Outlook

On the back of the sharp drop in inflation seen last month, traders are now pricing out any further tightening from the Fed. As such, USD remains vulnerable to further downside near-term, likely to be fuelled by any data undershoots or dovish Fed commentary. Looking ahead today, unemployment claims and the Philly Fed will be the two key data points to watch, we also have a raft of Fed speakers due.

Mixed Fed Views

Earlier this week, Fed’s Goolsbee noted that he was confident that inflation would continue lower, helped by strong supply-side developments. However, Fed’s Daly was more conservative saying that while data was encouraging it was still too soon to declare victory, a sentiment shared by Fed chairman Powell a week earlier. Fed commentary later today will be pivotal for shaping USD direction into next week.

Technical Views

DXY

The breakdown in DXY saw the index trading below the 104.95 level. With momentum studies bearish, the focus is on a test of the 103.48 level next which, if broken, opens the way for a test of 101.22 next. To the topside, bulls need to get back above 104.95 to alleviate near-term bearishness.