The US Dollar experienced significant selling pressure following the release of soft ADP figures from June. This decline led to increased expectations for a Fed rate cut in September. The FOMC minutes from the June meeting also highlighted that members recognized a ‘cool down’ of the economy. This has fueled speculation that a rate cut may be on the horizon as signs of disinflation and a cooling labor market become more evident.
The US Dollar, represented by the Dollar Index (DXY), fell to its lowest level since June 18 at around 105.20 after the release of the ADP labor market data. The meeting minutes from the June FOMC indicated that price pressures were easing, which further supported the belief in a potential rate cut. Despite this, Federal Reserve officials continue to maintain a data-dependent stance and exercise restraint.
Market focus will now shift to the June Nonfarm Payrolls data expected on Friday. In contrast to the Bloomberg consensus predicting a drop to 190k from 272k in May, whisper numbers suggest a figure closer to 198k. The FOMC minutes also acknowledged signs of a slowing US economy and easing price pressures, leading to a growing expectation of a September rate cut.
In terms of technical analysis, the outlook for the DXY turned negative in the short term as the RSI and MACD indicators shifted into negative territory. Bulls lost their position above the 20-day Simple Moving Averages (SMAs), with potential fallbacks towards the 105.00 and 104.50 zones. The former support of the 20-day SMA at 105.40 now acts as a resistance line for the DXY.
Overall, the USD faced selling pressure following soft ADP data and FOMC minutes highlighting a cooling economy. This has increased expectations for a rate cut in September, with market sentiment leaning towards a 70% likelihood of this scenario. The focus now shifts to the June Nonfarm Payrolls data and continued monitoring of technical indicators for further insights into the USD’s performance in the near term.
