The US dollar could be showing signs of weakness, indicating a possible interim top in its rally. This comes as the currency reacted negatively to below-expected US manufacturing and services PMI data. Despite the contraction in factory output in the Euro area and the UK, the US dollar saw a notable decline. The response highlights the broader sentiment in the market, even though recent data on industrial production, retail sales, and housing starts in the US have been positive. The focus is now on Federal Reserve Chair Jerome Powell’s upcoming speech at the Jackson Hole Economic Symposium, where his tone could determine the future of the US dollar.
On technical charts, the DXY Index, which measures the US dollar against a basket of major currencies, has struggled to break through the 200-day moving average and a downtrend line that has been in place since early 2023. Recent candlestick patterns suggest that the dollar’s rally may be coming to a halt. If the immediate support levels at 102.50-103.00 are breached, including the 89-period moving average and the lower edge of the Ichimoku cloud, it would confirm that the upward pressure on the dollar has faded.
In terms of specific currency pairs, EUR/USD is holding above key support levels, but it would need to rise above the resistance at 1.0900-1.0950 for downside risks to fade. GBP/USD has been trading in a narrow range, with support at 1.2600 and resistance at 1.2800. AUD/USD, on the other hand, appears oversold as it tests vital support levels. A potential turnaround could occur if it crosses above resistance levels on the charts. Overall, the US dollar’s outlook depends on Powell’s speech and whether it leans hawkish or takes a more data-dependent approach.