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The US Dollar is seeing a wave of fresh demand this week as safe-haven demand supports the greenback. The heavy miss on the Chinese Caixin services PMI overnight has fuelled fresh concern for the health of the Chinese economy. With recent support measures failing to inspire confidence, concerns over Chinese economic weakness are becoming a key focus point for markets. Earlier this year, expectations had been swirling regarding a sweeping new fiscal stimulus package from the government. However, with such measures yet to materialize, cracks in the economy continue to appear and, while this remains the case, USD looks likely to continue to benefit.
 

USD Higher Despite Fed Tightening Being Side-Lined

In terms of the Fed backdrop, expectations for further tightening from the Fed have been firmly diluted. Market pricing for a September hike is currently less than 10%. Last week’s US jobs data saw the unemployment rate spike higher with wages growth falling lower. Given the slew of other data misses we’ve seen recently (PMIs, consumer confidence, prelim GDP), the market is now looking ahead to the first projected rate cuts in H1 2024. Indeed, much of the current USD rally looks largely tied to safe-haven demand for DXY which looks likely to continue near-term.
 

Technical Views

DXY

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The rally off the 99.43 YTD lows has seen the market trading firmly higher. Price has since broken out above the bear trend line and the 103.48 level and is now testing the 104.95 level. This is a major pivot point for the market which, if broken, opens the way for a much further push higher. To the downside, 103.48 is the key support for bears to get back below. 

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