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USD Stays Down

The US Dollar remains under pressure as we commence the final full trading week of 2023. Last week, the Fed’s signal that rates will be cut next year acted as confirmation for those who have speculated over the likelihood of such a shift across recent months. On the back of the meeting, USD was heavily sold and looks prone to further downside heading forward.
 

What to Watch

The key for USD now will be incoming data. Further data weakness, particularly in inflation and inflation-linked data, should see market pricing for 2024 rate cuts coming forward, weighing on USD. On the other hand, if inflation ticks back up or other indicators begin improving, this will likely see rate cut pricing pushed further out through the year, supporting the USD near-term.
 

US Data Due

Looking ahead this week we have plenty of USD data to watch. Unemployment claims and final Q3 GDP on Thursday, followed by core PCE and UoM consumer sentiment on Friday will be the key releases to watch. Core PCE in particular, given its importance to the Fed as an inflation gauge, will be the main item here expected unchanged at 0.2%. Any undershooting of this level should keep USD pressured through end-of-year.
 

Technical Views

DXY

(Click on image to enlarge)

For now, DXY continues to push lower within the bear channel which has framed price action over recent months. Price is now close to testing the channel lows and the 101.22 level support. This is a major support zone for the index and likely to see some buying on the first test, pushing the index into range trading. A break below, however, will turn focus to 99.06 next. 

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