US dollar: ourlook for may 8-12

US dollar: ourlook for may 8-12

During the past week, the US dollar index (DXY) has been fluctuating around the 98.90 level.

The Federal Reserve kept interest rates unchanged at May meeting and downplayed weak first-quarter economic growth, bolstering market expectations for the central bank to raise interest rates in June. According to the futures market, the odds of a rate hike next month rose to 74%.

American nonfarm payrolls added 211K in April, the unemployment rate declined to 4.4% and average earnings gained by 0.3%. Despite these good figures, USD bulls stayed on the cautious side. Some weakness of the greenback may be related to the fact that the readings for March were revised to the downside. 

Donald Trump finally managed to pull the Health Care bill through the House of Representatives, but it’s still not clear whether he’ll manage to succeed in the Senate, where Republicans hold a slimmer majority. The success of this law will push the USD up as traders will become more optimistic about the future tax reform, which also needs the green light from the Congress. For now, the situation with tax reform remains uncertain depriving the USD of the important bullish driver. 

In the coming days, the most important releases in American economic calendar will be on Thursday (PPI, unemployment claims) and Friday (CPI, retail sales, preliminary consumer sentiment). Comments from the Federal Reserve members late on Friday will shape the market’s expectations about the Fed’s actions in June and will determine the sentiment about the American currency.

DXY stayed below the former support line from 2016 lows and below 200-day MA located just above 99.00. The greenback remains vulnerable for a decline to 97.55 (100-week MA, July 2016 highs). The 50-week MA at 98.45 is acting as support. Return above 99.30 is needed for the bulls to regain power. The next stops will likely be 100.00 and 100.45. 

 

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