The US Dollar is witnessing its earlier gains dissipate ahead of the US trading session on Friday. After a sharp rally earlier in the week, the Greenback is now experiencing some profit taking. The US Dollar Index (DXY) is trading below 107.00 under the pressure of this profit-taking activity.
On Friday, prior to the US trading session, the US Dollar is seeing a partial reversal of the gains it accrued this week. Traders are taking profits just before the weekend, especially after the dollar received an influx of funds due to the weakness in the Euro and the Yuan. The release of Import and Export data on Friday didn’t have a significant impact as the figures remained relatively flat.
The dollar got a boost on Thursday when the Producer Price Index (PPI) data for November came in well above expectations. While this data didn’t change the widespread belief that the US Federal Reserve (Fed) will cut interest rates by 25 basis points next week, it did reduce some expectations of further cuts in 2025.
The Greenback also found support from the anticipation of additional stimulus in other regions. In Europe, European Central Bank (ECB) President Christine Lagarde acknowledged that a 50 basis point rate cut scenario was being considered, though the Governing Council decided that a 25 basis point cut was more appropriate. In China, recent news indicated bolder economic support planned for 2025. The Politburo, led by President Xi Jinping, pledged to adopt a “moderately loose” monetary policy in 2025 along with a “more proactive” fiscal policy. As a result, bond prices have surged and China’s 10-year bond yields dropped to a record low of 1.77%, as reported by Bloomberg.
Daily Digest: Market Movers and Their Impact
Reuters reports that China’s top leaders and policymakers are considering allowing the yuan to weaken in 2025. Bloomberg reports that several analysts foresee the risk of China following a Japan-like scenario where bond yields could decline further.
The Import-Export Price Index for November didn’t cause much of a stir. The monthly Export Index fell to 0% after expanding by 1% in October, while the Import Index remained at 0.1%, similar to the level in October.
Equities are showing a geographical divide on Friday. In Asia, all major Chinese and Japanese indices are in the red, whereas in Europe and the US, the major indices are posting gains.
The CME FedWatch Tool is pricing in a 96.4% probability of another 25 basis points (bps) rate cut by the Fed at the December 18 meeting.
The US 10-year benchmark rate is trading at 4.35%, which is a new high for this week.
US Dollar Index Technical Analysis: Profit Taking in Focus
The US Dollar Index (DXY) has been primed for another rally due to developments in the bond markets this week. After the ECB widened the rate differential gap between the US and Europe, the prospects of further easing in China have added to this gap on Friday with the plunge in Chinese yields, strengthening the US Dollar.
The 107.00 level was broken on Friday, but it needs to see a daily close above it to serve as support going forward. Close by, the 107.35 level (October 3, 2023, high) might act as a brief resistance. Further up, the high of November 22 at 108.7 emerges as a significant level.
Looking at the downside, 106.52 is now the new first support level to watch for in case of profit taking. Next in line is the pivotal level at 105.53 (April 11 high) that comes into play before reaching the 104-region. Should the DXY decline all the way to 104.00, the 200-day Simple Moving Average at 104.17 should provide support against further downward movement.
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