US Dollar resumes its downside, bears eye December lows

DXY Index plunged towards the 101.90 area, posting 0.40% daily losses.
Gross Domestic Product of the United States expanded at an annual rate of 4.9% in Q3, revised from 5.2%
US Jobless Claims accelerated in the second week of December.

The US Dollar (USD) measured by the DXY index plunged to 101.90 and nears December lows struck last week, steered by the downward revisions in US Gross Domestic Product (GDP) from Q3. Negative Jobless Claims and Philadelphia’s Fed manufacturing conditions figures also added to the downturn.

At the Fed’s last meeting, policymakers sent a dovish signal to markets. The cooling inflation and the absence of rate hikes in 2024, alongside 75 bps of easing forecasts, are all reflective of a less aggressive stance that weakened the US Dollar. Until the next bank’s meeting, all data that suggest a slowdown in the economy may pave the way for further downside, and the expectations of sooner rate cuts next year may come to fruition.

Daily digest market movers: US Dollar plunges as soft data and lower yields weigh

The US Dollar trending downward, bordering on December lows.
The US Q3 real GDP growth was revised down to 4.9%, from the initial 5.2% estimate due to reduced consumer spending and lower imports reported by the Bureau of Economic Analysis (BEA).
The Philly Fed Manufacturing sector survey for December plunged to -10.5. 
Initial Jobless Claims for the week ending December 16, published by the US Department of Labor, increased to 205K from the previous 202K, but came in lower than the 215K expected.
US bond yields declined following the release but seem to be recovering, with the 2-year yield at 4.34%, the 5-year yield at 3.86%, and the 10-year yield also at 3.87%, near multi-month lows, adding pressure to the USD.
As per the CME FedWatch Tool, markets are betting on rate cuts on March 2024.
November Personal Consumption Expenditures (PCE) Price Index figures from the US are due on Friday, which may fuel additional volatility on the index.

Technical Analysis: US Dollar Index selling momentum resumes, dampening recent upsurge 

On the DXY daily chart, the Relative Strength Index (RSI) exhibits a downward slope within negative territory, indicating a strong bearish momentum. Despite bulls gaining some ground in the last sessions, the overwhelming selling force isn’t allowing a significant shift in the short-term trend. On the Moving Average Convergence Divergence (MACD), rising red bars signal a sell-off is underway, further validating the negative outlook. 

Looking at the Simple Moving Averages (SMAs), the index position below the 20,100, and 200-day metrics shows a long-term dominance of the bears. This challenging position for the buyers, combined with the RSI and MACD indications, brings forth a short-term, bearish technical outlook. 

Support levels: 101.80,101.50, 101.30.

Resistance levels: 103.10 (20-day SMA), 103.50 (200-day SMA), 104.00.

Dot Plot FAQs

The “Dot Plot” is the popular name of the interest-rate projections by the Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed), which implements monetary policy. These are published in the Summary of Economic Projections, a report in which FOMC members also release their individual projections on economic growth, the unemployment rate and inflation for the current year and the next few ones. The document consists of a chart plotting interest-rate projections, with each FOMC member’s forecast represented by a dot. The Fed also adds a table summarizing the range of forecasts and the median for each indicator. This makes it easier for market participants to see how policymakers expect the US economy to perform in the near, medium and long term.

The US Federal Reserve publishes the “Dot Plot” once every other meeting, or in four of the eight yearly scheduled meetings. The Summary of Economic Projections report is published along with the monetary policy decision.

The “Dot Plot” gives a comprehensive insight into the expectations from Federal Reserve (Fed) policymakers. As projections reflect each official’s projection for interest rates at the end of each year, it is considered a key forward-looking indicator. By looking at the “Dot Plot” and comparing the data to current interest-rate levels, market participants can see where policymakers expect rates to head to and the overall direction of monetary policy. As projections are released quarterly, the “Dot Plot” is widely used as a guide to figure out the terminal rate and the possible timing of a policy pivot.

The most market-moving data in the “Dot Plot” is the projection of the federal funds rate. Any change compared with previous projections is likely to influence the US Dollar (USD) valuation. Generally, if the “Dot Plot” shows that policymakers expect higher interest rates in the near term, this tends to be bullish for USD. Likewise, if projections point to lower rates ahead, the USD is likely to weaken.

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