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 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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