US Dollar News: ECB Hold Shifts Focus to Fed and PMI Data
Markets were recalibrating after the European Central Bank kept its benchmark rates unchanged. It maintained the deposit rate at 2.25%, the main refinancing rate at 2.40%, and the marginal lending facility rate at 2.65%. “Decisions next time will be meeting by meeting and data dependent,” Christine Lagarde said. “As regards the inflationary effects of higher energy prices in view of the Middle East escalation, this adds to the uncertainty of the path of inflation over time.”
The dollar continued to be supported by strong fundamentals, and Treasury bonds were also higher. Attention turned to today’s S&P Global flash PMI surveys with US manufacturing seen at 54.5, services at 51.5, and the composite above the 50 threshold for expansion. A good set of numbers will provide more evidence of the US economy’s resilience ahead of the Federal Reserve meeting next week. Investors will also hope the Fed keeps rates on hold with officials signaling their cautious approach.
The euro was less focused on the outcome than on the ECB’s communication. Policymakers noted that inflation was easing in the euro area. But they said inflation might not return sustainably to the 2% target for some time due to fluctuating energy prices and noted that there is still room for more hikes.
Sterling focused on June retail sales and the flash PMI data for July this afternoon. The manufacturing PMI is projected at 52.0 and services PMI at 50.0. Stronger sales figures will provide more proof of the resilience of the domestic economy, supporting the Bank of England’s approach as the focus turns to fighting inflation.
Dollar Index (DXY) Technical Analysis: Uptrend Intact Above 101.20 Support
The USD Index remains positive after bouncing off the 100.50-100.60 support area and recapturing the 101.20 level. Current quotes around 101.33 sit above the 50-EMA (at 101.06) and the 100-EMA (at 100.97), which indicates buyers have been taking charge. The DXY’s rising trend line is continuing to act as support, and the current reading at RSI 60 suggests there is room for further upside, with no imminent signs of overbought conditions.
The first resistance is at 101.65, followed by 102.06 and then 102.42. On the lower side, the new support comes in at 101.20, with the 100.50 and 99.92 areas attracting buyers.
Provided DXY sustains above 101.20, the uptrend is on track and another leg higher towards 101.65-102.06 may be in the cards. The bullish perspective would fade if the DXY were to slide below 100.50 and open the way for further losses towards 99.92.
