US Dollar Index Retreats Ahead of US GDP Data | Errante
Market Overview
The US Dollar Index (DXY) has retreated below the 104.50 mark as investors brace for the coming up economic data and policy developments. The Greenback is under pressure as US Treasury yields decline. Traders are now eying US Q4 GDP and initial jobless claims data due later today.
Fundamental Analysis
Market participants expect a slight rise in the initial jobless claims from previous 223k to 225k. Continuing claims are expected at 1888k, a bit lower than previous 1892k. A higher than expected figure could exacerbate the concerns regarding labor market weakness, leading to further weakening of the US dollar.
The US Final GDP is expected to be 2.3% for the fourth quarter of 2024. The previous reading was upbeat at 3.1%. However, today’s figures are tilted to the downside. Any figures below 2.3% could weaken the greenback and benefit gold, pound, and euro.
The US economy seems to lose momentum as 2025 growth forecasts have slowed down to 1.55% from 2.5% in 2024 and 3.2% in 2023. Rising tariffs, weak household income, and higher interest rates may continue to weigh on the US dollar.
The market has recently seen volatility as President Trump has imposed 25% tariff on automobiles with a delay on auto parts. St Louis Fed President Musalem warned that these measures could increase the inflationary pressures. Fed’s Kashkari also emphasized the complexity of policy path due to these challenges.
Though the US dollar appreciated 7% in 2024, the current weakness shows a shift in the macroeconomic landscape. The REER (real effective exchange rate) remains near all-time high but slowing growth and escalating uncertainty may limit further gains. Chinese stimulus may support the Aussie, further weighing on the US dollar.
With a fragile market sentiment, market participants are expecting an increased volatility in the currency markets with the release of today’s major data. Any strong data print could lend a temporary support to the greenback.
Technical Analysis
The US Dollar Index (DXY) is currently trading within a defined range between 103.85 and 104.25. An unconfirmed H4 order block is observed near the lows at 103.85, which confluences with No Supply signals, potentially indicating support where selling pressure appears to be diminishing. Conversely, at the latest high of 104.25, there are no No Demand signs present, suggesting a lack of significant buying interest at higher levels, thereby reinforcing this area as resistance. Technically, the index is consolidating within this range, reflecting a neutral market sentiment as participants await the release of the US PCE data tomorrow, which is expected to act as a pivotal event for potential directional movement. This setup points to the likelihood of continued range-bound trading in the short term unless economic news prompts a breakout.
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