US dollar index
The US dollar index (DXY) is down by more than 0.25% today as traders react to the strong economic number from Europe and a bearish statement by Goldman Sachs. The index is trading at $96.92, which is below last week’s high of $97.92.
The US dollar index is weak across the board. It is down by more than 40 basis points against the euro, 15 points against sterling, and 0.20% against the Swedish krone. It is unchanged against the Canadian dollar and the Japanese yen.
The main reason for the DXY underperformance is a streak of upbeat economic numbers from Europe. According to Eurostat, retail sales in the Eurozone rose by 17% in June as the countries started to reopen their economies. That was the best number ever recorded. It was also better the 15% that analysts were expecting.
On an annualised basis, the sales dropped by 5.1%, which was better than the expected decline of 7.5%. Also, in Germany, factory orders rebounded by more than 10% in May. Meanwhile, in the United Kingdom, the construction PMI rose to 55.3 in June.
Later today, we expect the Markit services PMI and ISM non-manufacturing PMI to be better than what was reported in June.
Despite the upbeat numbers released from the United States, Goldman Sachs is pessimistic about the US recovery. In a report released yesterday, the analysts said that they expected the economy to contract by a higher margin than earlier expected. They now expect the economy will grow by 25% in the third quarter. That was a weaker growth than the 33% that they had predicted. They said:
“A combination of tighter state restrictions and voluntary social distancing is already having a noticeable impact on economic activity.”
The US dollar index is trading at 96.90, which is below last week’s high of 97.80. On the daily chart, this price is below the 50-day and 100-day exponential moving averages. The price is also below the 100-day and 50-day exponential moving averages, while the RSI has started moving lower.
This means that the short-term outlook of the DXY is bearish. I expect bears to attempt to attempt to push it below 97. On the flip side, a move above last week’s high of 97.80 will invalidate this prediction.