US dollar forecast:
- U.S. dollar The week starts in full swing, weighed down by concerns about the impasse in the US debt limit and disappointing economic data.
- US Retail Sales and Industrial Production from April should be watched on Tuesday
- In terms of technical analysis, DXY reverses lower from Fibonacci resistance, and fails to follow through on the upside after the bullish breakout late last week.
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After a strong rally late last week, the US dollar, as measured by the DXY index, fell on Monday despite US Treasury yields rising across most of the pay periods. In early afternoon trading in New York, the dollar gauge was down 0.23% at 102.46, retreating from a more than five-week high reached during the evening session – and the bullish momentum seen over the past two days may be waning.
In terms of drivers, the weaker performance of the US dollar is likely attributed to concerns about the impasse of the US debt limit and disappointing economic data released earlier.
On the debt ceiling, Congress remains deadlocked, with House Speaker Kevin McCarthy stating that negotiations with the Democrats remain far apart. On the macro front, the Empire State New York Manufacturing Index for May continued with the sharpest decline since April 2020, falling to -31.8 from 10.8 previously vs. -3.75 expected, suggesting that the economy may be heading lower faster than expected.
Looking at the US economic calendar, there are several high impact events worth watching later this week, including retail sales and industrial production data on Tuesday. Traders should closely examine these reports for clues to the overall outlook, keeping in mind that weakness in both indicators could reinforce a pause in the Fed’s June hike cycle.
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Incoming economic data for the United States
source: DailyFX Economic Calendar
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Technical analysis of the US dollar DXY
From a technical point of view, DXY made a bullish breach last Friday, breaching confluence resistance at 102.24/102.40, but failed to follow through to the upside, with prices reversing lower off a key Fibonacci area on Monday.
For the bulls to get some upside in the coming days, the index must remain above 102.24/102.40. Failure to defend this floor could spoil the mood, leading to a decline towards 101.15, followed by 2023 lows.
Conversely, if the US dollar rebounds from current levels, initial resistance appears at 102.75, the 38.2% Fibonacci retracement of the March/April sell-off. If this barrier is removed decisively, the bulls may be able to launch an attack at 103.40.
USD Technical Chart (DXY)
