DXY At Lows

The US Dollar remains anchored lower through early European trading on Tuesday. The DXY is sitting on the 98-level support, just slightly up off the YTD lows. With sentiment weak and downside risks remaining elevated, bulls have a hard task ahead of them to find any sort of recovery. The conflict between Israel and Iran has created fresh downside pressure on USD and any further escalation in that conflict looks poised to drive USD lower near-term. Additionally, the ongoing war between Russia and Ukraine (Russia last night issued its largest drone strike since the war began) shows no signs of stopping and remains a key headwind for risk sentiment. Finally, fresh threats of further tariff increases from Trump are adding to negative sentiment with USD at risk of a heavy move lower if Trump pushes ahead with threatened tariff increases early next month.

US Retail Sales Up Next

Looking ahead today, traders will be watching the latest US retail sales data ahead of the FOMC tomorrow. The market is expecting the monthly headline figure to have fallen to -0.5% from 0.1% prior. If seen, this should keep USD pressured in to the FOMC tomorrow with traders looking for signals from the bank that it plans to press ahead with further easing in the near-term. Money markets currently peg September as the expected date for the next Fed rate cut. If this view is strengthened on the back of tomorrow’s meeting, USD should see a fresh drift lower, particularly if the Israel-Iran war shows no signs of slowing down.  

Technical Views

DXY                  

Following the break of the rising trend line from YTD lows, price is now sitting on support at the 98.03 level, just above those lows. Sentiment remains weak and with price still within the bear channel, focus is on a fresh push lower towards the 94.85 level