US Dollar At Critical Juncture Before Data

With GDP data ahead, the US dollar will likely break from a tight range this week. 

DXY Dollar Index – Daily Chart

DXY – Daily Chart 

The dollar index is highlighting a turning point for the USD, and this week, a breakout or correction should begin.  

The US economy’s durable goods orders were released on Wednesday evening, and the market expects an improvement of 2.5% from 1.3%. The following day, the GDP release will be at 8:30 pm HKT, but traders can use the levels provided to play a move outside the recent range. 

Growth is expected to slow in the US to 2.5% from 3.4%, which could affect the interest rate path. Some analysts are critical of higher rates for slowing economic growth.  

The dollar continues to be a headache for Asian central banks, with USDJPY trading at levels close to 155, which could prompt intervention from the Bank of Japan. Markets will also be busy with US earnings this week when companies such as Tesla and Alphabet report. 

Some see the potential for the Federal Reserve to hold rates at higher levels on the interest rate front. New York Fed President John Williams discussed the potential last week for hikes but does not see it soon. Currently, the Fed is seeking a 2% inflation rate, yet recent figures are closer to 3%. That has dampened the market’s mood for summer rate cuts that could boost economic growth. 

Friday has an important inflation barometer with the US personal consumption expenditures (PCE) report, and it could mark a critical week for the US dollar. 

Jerome Powell and other central bank officials have continued to stress the need for patience. This week’s GDP number could be a vital indicator for traders over the coming weeks. Chicago Fed Reserve President Austan Goolsbee was the latest official to hit higher rates, saying the progress on bringing down inflation has “stalled” this year. 

Gold prices dropped more than 2% to a one-week low after worries over a wider Middle East conflict subsided with no escalation over the weekend.

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