US Dollar flat on the day ahead of tomorrow's busy calendar
On Monday, the US Dollar Index, which tracks the greenback against a basket of six trade-weighted peers, stayed in one of its tightest trading ranges in recent months and is now lifeless at 97.33, where it closed the previous week.
The trading volume, which was already low during the Asian and European sessions, thinned out even further in the NA session as the American traders enjoyed their long Memorial Day weekend. Until tomorrow's data, the greenback could continue to have a tough time making a decisive move in any direction.
The Federal Reserve’s favorite inflation measure, the core Personal Consumption Expenditures (PCE) index, will be released tomorrow. The last data, released for March, revealed that the index moved further away from Fed's 2% target rate as it came in at 1.6% on a yearly basis. The CME Group FedWatch Tool shows that the probability of a 25 bps June rate hike is at 86.5%. If tomorrow's data shows an improvement towards 2%, the odds of a rate hike could rise even further, further supporting the DXY. Additionally, both the personal spending and personal income figures are expected to advance following March's dismal readings.
- Fed is tightening in a gradual way – BMO CM
Furthermore, solid earning reports from big retailers in the last couple of weeks suggest that consumers are spending again, ramping up the expectations for tomorrow. If the Wall Street responds positively to the data, we could see the U.S. Treasury yields move higher, increasing the demand for the greenback.
- USD longs reduced, EUR shorts cut - ANZ
- USD: Bull move is over? - BBH
Technical outlook
The index could encounter the initial support at 97 (psychological level) ahead of 96.70 (May 23 low and, 95.90 (Nov. 11 low). To the upside, resistances are located at 97.50 (May 26 high), 98 (May 18 high/psychological level) and 98.75 (May 16 high).
- Economic calendar