- The US Dollar Index (DXY) maintains intraday gains following the release of both European and US PMI data.
- The Greenback gains support as the economic disparity between the US and Europe widens in favor of the US.
- The US Dollar Index briefly surged above 108.00 before retreating to 107.50.
The US Dollar (USD) hit a fresh two-year high, pushing the DXY US Dollar Index above 108.00, after disappointing Eurozone Purchasing Managers Index (PMI) data suggested the region may be on the brink of a recession. This weighed heavily on the Euro (EUR), the DXY's main component, as it raises the possibility of further interest rate cuts by the European Central Bank (ECB) to stimulate growth.
Additionally, the final reading for Germany's Gross Domestic Product (GDP) was revised downward to just 0.1%, indicating minimal growth in the Eurozone's largest economy during the third quarter.
The US Dollar also received support from safe-haven flows amid the escalating Russia-Ukraine conflict, with Russia reportedly placing a US military base in Poland at the top of its retaliation targets.
While the US economic calendar saw little significant movement, the US PMI for November became a key focus after the European PMI data was released. The US PMI numbers beat expectations, further confirming that the US economy is outpacing the Eurozone. Despite the Dollar's earlier strength, markets did not continue to rally into the Greenback by the end of the day.
Daily Digest Market Movers: US PMI Supports Current Levels
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European PMI data painted a grim picture for the Eurozone and its major economies. The Eurozone Composite PMI dropped to 48.1 from 50, falling short of expectations and signaling economic contraction. The services sector entered contraction, while the manufacturing downturn gained momentum.
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PMI figures for Germany and France also underperformed. Germany saw its economic activity contract at the fastest rate in nine months, while France recorded its steepest contraction since January.
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Germany's third-quarter GDP was revised down to 0.1%, from an initial reading of 0.2%, indicating weaker-than-expected growth.
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At 14:45 GMT, S&P Global released the preliminary US PMI data:
- Manufacturing remained in contraction, though it rose slightly to 48.8 from 48.5 in October.
- Services PMI showed a strong surprise increase, reaching 57.0, above the 55.3 forecast and up from 55.0 in October.
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At 15:00 GMT, the University of Michigan will release its final November Consumer Sentiment reading, expected to improve slightly to 73.7 from the preliminary 73.0, with inflation expectations holding steady at 3.1%.
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European and US equities are experiencing a volatile Friday, both trading around 0.5% higher on average.
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The CME FedWatch Tool shows a 55.9% probability of a 25 basis point rate cut by the Fed at its December 18 meeting, with a 44.1% chance of rates staying unchanged. While the rate cut remains the most likely scenario, traders have reduced their rate-cut expectations from 62% a week ago.
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The US 10-year benchmark yield is trading at 4.42%, gradually rising toward the 4.50% level seen last Friday.
US Dollar Index Technical Analysis: Current Levels Hold Steady
The US Dollar Index (DXY) is edging higher, driven by disappointing European PMI data showing the Eurozone is in contraction. With US PMI data still pending, the performance gap between Europe and the US appears to have widened in favor of the US. Traders should watch for potential profit-taking ahead of the weekend, which could lead to a pullback by the US closing bell on Friday.
A daily close above 107.00 is crucial to maintain momentum before the weekend. The recent two-year high of 108.07 is now the key level to beat, with the next significant resistance at 109.00.
On the downside, the first support level is 105.89, which has been a pivotal point since May 2. A bit lower, 105.53 (the April 11 high) will be the next key level to watch, as a break below this could lead to a move toward 104.00. If the DXY drops to 104.00, the 200-day Simple Moving Average at 103.95 should act as a strong support level to prevent further declines.
