- The US Dollar rises following the release of preliminary December PMI data.
- Traders show renewed interest in the Greenback as the Services PMI surpasses the previous reading.
- The US Dollar Index (DXY) climbs above 107.00, aiming for 107.35.
The US Dollar (USD) traded higher on Monday after starting the week in negative territory. The turnaround followed a stronger-than-expected preliminary release of the S&P Global Services Purchasing Managers Index (PMI) for December. The index surged to 58.5, significantly outperforming the previous reading of 56.1 and the consensus estimate of 55.7, providing a strong boost to the Greenback after its sluggish performance earlier in the day.
Earlier on Monday, weak Chinese Retail Sales data for November set the tone for the markets. Retail sales grew by just 3.0%, falling short of the lowest analyst estimate of 4.2% and well below the median forecast of 5.0%. The disappointing figures suggest that the Chinese government’s recent stimulus measures are not delivering the expected economic impact.
In Europe, preliminary December PMI data from S&P Global and Hamburg Commercial Bank (HCOB) revealed ongoing weakness in manufacturing across France and Germany, both of which remain deep in contraction. However, German Services PMI offered a positive surprise, climbing back into expansion territory at 51.0, beating expectations of 49.3.
This stronger-than-expected data may work in favor of German Chancellor Olaf Scholz as he faces a no-confidence vote in the Bundestag later on Monday. A defeat would trigger a collapse of the German government, following a similar fate in France, with snap elections potentially set for February 23.
Daily Market Movers: US Outshines Europe with Strong Services PMI
- China’s Retail Sales: November retail sales grew by 3.0% year-over-year, missing the 4.6% market expectation. The disappointing data boosted the US Dollar (USD) against the Chinese Yuan (USD/CNH).
- German Services PMI: A surprise uptick in German Services PMI, coupled with speculation over snap elections, is lifting the Euro against the US Dollar (EUR/USD).
- US Preliminary PMI Data (14:45 GMT):
- Services PMI surged to 58.5, outperforming the 55.7 forecast and the previous 56.1.
- Manufacturing PMI slid deeper into contraction at 48.3, below both the 49.4 estimate and the prior reading of 49.7.
- Services remain the key driver, with a weaker US Dollar likely if services contract significantly, while upbeat figures could further strengthen the Greenback.
- Equities: Markets are mixed, with European equities lagging. In contrast, strong US Services PMI data is boosting US equities, led by the Nasdaq, which is up nearly 0.70%.
- Federal Reserve Expectations: The CME FedWatch Tool shows a 97.1% probability of a 25 basis point rate cut at the Fed’s December 18 meeting.
- US 10-Year Yield: The benchmark US 10-year Treasury yield holds steady at 4.39%, slightly below last week’s 4.40%.
US Dollar Index Technical Analysis: US Returns to Exceptionalism
The US Dollar Index (DXY) is showing signs of losing momentum, with price action flattening and shifting to a sideways pattern. Traders appear to be in a wait-and-see mode, likely holding off on significant moves until President-elect Donald Trump assumes office or until new US data prompts action. The uncertainty surrounding which of Trump’s proposed policies will be enacted versus those used as negotiation tactics may keep the DXY in a holding pattern until late January.
On the upside, 107.00 remains a critical resistance level. A breakout above this level would open the door to 108.00, with the 2-year high of 108.07 from November 22 as the next major target.
On the downside, initial support is seen at 106.52 in the event of profit-taking. Below that, the pivotal 105.53 level, marked by the April 11 high, serves as the next key support before the index approaches the 104.00 region. Should the DXY slide towards 104.00, the 200-day Simple Moving Average at 104.19 is expected to provide strong support against further declines.
