The US Dollar has been trading softer at the start of the week, with the Greenback continuing to experience losses following Friday’s turmoil. The US Dollar index is on the verge of entering the 101-region, which could lead to further downside for the currency.
The decline in the US Dollar has been largely attributed to a more than 1% appreciation of the Japanese Yen against the Greenback. The Commodity Futures Trading Commission (CFTC) reported that hedge funds are net long on the Japanese Yen, which has caused Asian and European investors to follow suit. Since the Japanese Yen accounts for 13.6% of the US Dollar Index (DXY), its rise has weighed on the index’s performance, leading to lows not seen in nearly seven months.
Economically, the week has started off on a soft note with all eyes on the annual US Federal Reserve’s Jackson Hole Symposium at the end of the week. This event will feature central bankers, including Fed Chairman Jerome Powell, and is known for potentially signaling a change in monetary policy. Leading up to the event, there will be various headlines from central bankers, and the US Purchasing Managers Index (PMI) data on Thursday will provide insight into the state of the economy.
In terms of market movers, President of the Federal Reserve Bank of Minneapolis, Neel Kashkari, stated that inflation is making progress. Additionally, the CFTC’s report on speculative positions in currency futures markets showed hedge funds are net long on the Japanese Yen for the first time since 2021. With Federal Reserve Governor Christopher Waller making remarks and the US Treasury allocating short-term bills, the market is looking for direction with mixed movements in Asian and European equities. The CME Fedwatch Tool indicates a 72% chance of a 25 basis points interest rate cut by the Fed in September.
Looking at the technical analysis of the US Dollar Index, hedge fund positioning suggests a bleak outlook for the currency. Traders are cautious about the potential for further downside, with pivotal levels to watch for potential support and resistance. The next immediate support level is at 101.90, while key resistance levels lie at 103.18, 103.99-104.00, and the 200-day Simple Moving Average at 104.07. If the US Dollar continues to decline, it could reach lows not seen since early January, with the ultimate level to watch being the low of December 28 at 100.62.
