US Dollar Outlook: DXY Reacts To Retail Sales, Consumer Sentiment

The US Dollar is gaining ground against key FX peers Friday morning with the broader DXY Index up around 0.15% intraday at the time of writing. This is in the wake of some high-impact data releases like monthly retail sales and consumer sentiment. Headline retail sales rose 0.6% month-over-month versus the consensus forecast looking for a -0.4% decline with core retail sales up 1.3% versus 0.4% expected.

Better-than-expected retail sales is contrasted by a miss on the latest consumer sentiment index reading. Headline consumer sentiment crossed market wires at 80.8 for July, which was below consensus estimates of 86.5 and marked a -5.5ppt decline from June’s reading. Both the current conditions and future expectations components of the consumer sentiment index showed weakness with inflation concerns being increasingly prevalent amongst consumers.

DXY – US DOLLAR INDEX PRICE CHART: 4-HOUR TIME FRAME (28 JUNE TO 16 JULY 2021)

DXY Index Price Chart US Dollar Forecast

Chart by @RichDvorakFX created using TradingView

That said, the consumer sentiment report showed one-year consumer inflation expectations hitting 4.8% and its highest reading since August 2008. This has potential to intensify Fed taper speculation and help maintain upward pressure on the US Dollar in turn. Looking at a chart of the broader US Dollar Index, though, we can see that the DXY faces formidable technical resistance posed by the 92.80-price level nevertheless.

Invalidating this barrier likely opens up the door to a topside breakout and extended push by US Dollar bulls. On the other hand, with long-term consumer inflation expectations little changed at 2.9%, and in light of the Fed’s still-standing transitory inflation narrative, it seems more probable that US Dollar bears fade recent strength barring a systemic deterioration in risk appetite.

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