- The U.S. dollar weakens, erasing Thursday’s gains amid renewed selling pressure.
- Federal Reserve Chair Jerome Powell surprised markets by expressing uncertainty over a potential December rate cut.
- The Dollar Index slips to the mid-106 range, with the possibility of further declines looming.
The U.S. dollar weakened on Friday, snapping a five-day rally as traders locked in profits following the Trump-fueled surge that had driven the greenback to its 2024 peak on Thursday. Despite this pullback, speculation about a December rate cut by the Federal Reserve (Fed) diminished after Fed Chair Jerome Powell highlighted robust economic growth and a strong labor market during his speech on Thursday. These remarks have tempered expectations for further monetary easing, disappointing global equities, which had been pricing in a favorable year-end scenario.
Market focus now shifts to the U.S. Retail Sales report, a critical indicator of consumer health ahead of the holiday shopping season. Analysts anticipate modest growth, but attention will also be on any revisions to previous data, which could have a more significant market impact
Market Movers: The Fed Takes Center Stage
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Fed Signals Shift: In a Thursday speech, Federal Reserve Chairman Jerome Powell surprised markets by casting doubt on a December rate cut. Traders speculate the Fed might be pricing in a "Trump trade effect," suggesting that monetary policy may remain tighter than previously anticipated.
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Boston Fed’s View: President Susan Collins reinforced the uncertainty surrounding a December rate cut in an interview with The Wall Street Journal, citing a lack of significant inflationary pressures.
- New York Empire State Manufacturing Index (13:30 GMT): Projected to remain near the contraction zone, with an estimate of -0.7.
- Industrial Production (14:15 GMT): A contraction of 0.3% is expected for October, matching the prior month's decline.
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U.S. Retail Sales (13:30 GMT): Headline growth is forecasted to ease slightly to 0.3% from 0.4%, while sales excluding automobiles are expected to rise by 0.3%, down from the previous month's 0.5%.
- New York Empire State Manufacturing Index (13:30 GMT): Projected to remain near the contraction zone, with an estimate of -0.7.
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Key Fed Appearances: Boston Fed President Collins will provide opening remarks at 14:00 GMT during the 68th Economic Conference.
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Global Equities Mixed: Asian markets closed with mixed results—Japanese equities gained while Chinese indices declined. U.S. futures indicate a downward trend, with the Nasdaq approaching a 1% drop in early trading.
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Rate Cut Expectations Cool: The CME FedWatch Tool shows a 58.7% likelihood of a 25-basis-point rate cut on December 18, with a 41.3% chance of rates holding steady. This marks a notable reduction in rate-cut bets compared to last week.
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Treasury Yields: The 10-year U.S. Treasury yield remains at 4.43%, slightly below Thursday’s peak of 4.48%.
US Dollar Index Technical Analysis: Outlook and Key Levels
The U.S. Dollar Index (DXY) is showing a modest decline on Friday, but caution is warranted as Powell's comments from Thursday remain supportive of the dollar. The Federal Reserve has signaled a likely pause in its rate-cut cycle, contrasting with the European Central Bank (ECB), which is expected to continue cutting rates. This widening interest rate differential should bolster the U.S. dollar's appeal as a high-yielding currency.
Key Resistance Levels:
- The 107.00 round figure remains a critical level, following Thursday's sharp rejection.
- A fresh yearly high of 107.07 has already been marked, and a move above 107.35 could signal the possibility of reaching a two-year high.
Key Support Levels:
- Immediate support is at 105.93, the closing level from Tuesday.
- A lower pivot at 105.53 (April 11 high) serves as another important threshold, helping to stave off further declines toward 104.00.
This technical setup highlights a cautiously bullish bias for the DXY, contingent on its ability to maintain critical support levels and build momentum above current resistance levels
