US Dollar sees gains, dovish bets on the Fed might limit the upside

• Market continues to overestimate Fed easing with the central bank pushing back against dovish expectations.
• Economic data remains solid as S&P Global preliminary September PMIs come in above expectations.
• Fed officials will try to push back on the dovish rhetoric.

The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, whipsaws in a volatile session on Wednesday, hovering around a 14-month low due to intensifying recession fears. Despite the market’s persistent higher estimation of Federal Reserve (Fed) easing, the central bank has countered dovish expectations. Friday’s Personal Consumption Expenditures (PCE) figures from August will be closely watched.

While the US economy exhibits a slowdown in certain sectors, other areas remain resilient, supporting overall economic activity. Despite this mixed picture, the Fed emphasizes that the path of interest rate adjustments will hinge on forthcoming economic data.

Daily digest market movers: US Dollar gains despite steady dovish bets, markets await PCE figures

• Market continues to overestimate the extent of Fed easing despite some Fed Governors’ efforts to curb dovish expectations.
• Market is pricing in 75 bps of easing by year-end and 175-200 bps of total cuts over the next 12 months.
• On Thursday, Gross Domestic Product (GDP) and Friday’s PCE figures will be key for the USD dynamics.
• It is worth noticing that Jerome Powell stated that the pace of the easing cycle will depend on incoming data, so their outcome might shake the USD. Fed Chair Jerome Powell will be on the wires on Thursday.

DXY technical outlook: Bearish momentum persists, bulls lack strength

The DXY has largely bearish tradewinds casting it about on the technical charts.

The Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) gained some momentum, but the RSI remains below the negative zone, and the MACD continues to indicate flat green bars.

These technical indicators suggest that the bears are in control and that buying pressure is weak. Support levels can be found at 100.50, 100.30 and 100.00, while resistance levels are located at 101.00, 101.30 and 101.60.