After navigating increased volatility in the prior session, the US Dollar Index (DXY) held steady in the Thursday session. On Wednesday, the US reported quarter-on-quarter GDP growth of 3.2%, a significant decline from the prior 4.9%, while slowing more than the expected 3.3%.
However, the greenback held steady, as the market anticipates the PCE data due later today for further clues on the path of the Federal Reserve’s monetary policy in the year to come. As things stand, the consensus is for a 0.4% increase in the month-over-month Core PCE Price Index, while the year-over-year figure is expected to decline from 2.9% to 2.8%. Any surprises in this print could seriously alter the market’s consensus for interest rates in the future, potentially enforcing some directional price action for the US Dollar.
Technical
On the 4H chart, a descending channel has formed, with the recent volatility sparking a breakout from the channel. Resistance at the Fibonacci midpoint of 104.206 triggered a retracement, forcing the index below the 50-SMA (blue line) and 25-SMA (green line) to retest the initial breakout level.
Support at 103.822 could be a crucial level to watch in the upcoming session. If the price can pivot off this level to edge higher, the breakout could be confirmed, potentially leading the price toward 103.991 and 104.206 to retest the Fibonacci midpoint that previously triggered the pullback. If it can clear this hurdle in the sessions to come, the 61.8% Fibonacci golden ratio at 104.338 could come into play as the bullish advance continues.
However, if the support at 103.822 fails, it could signal an unsustainable breakout. Lower support at 103.685 and 103.485 could then come into play as the price returns within the channel before the psychological demand zone at 103.125 could determine whether the initial downtrend will be prolonged.
Summary
Despite a volatile session on Wednesday, sparked by the release of the latest US GDP growth statistics, the DXY held steady on Thursday ahead of the PCE data. Support at 103.822 could be worth watching as we advance as a potential signal of the sustainability of the channel breakout.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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