South Africa, like many emerging markets, keeps a keen eye on the US Dollar Index (DXY), which has shown a noticeable recovery, hitting a fresh three-week peak above the significant 1,836.20 ZAR mark (102.00 USD) this Tuesday.
The DXY’s Focus on Crucial Data
The DXY continues its bullish trend from Monday’s session, challenging the 1,836.20 ZAR barrier once more amid a somewhat lacklustre risk environment in the first half of the current week.
Market participants and foreign exchange observers have apparently adopted a “wait-and-see” approach ahead of key US labour market data releases later in the week. The Federal Reserve’s renewed data-dependent position, underscored during the latest FOMC meeting on July 26, adds to the anticipation.
US data to be released include the final Manufacturing PMI from S&P Global, Construction Spending, and the highly significant ISM Manufacturing PMI for July.
Decoding the USD Trajectory
The DXY continues its upward climb with an eye firmly on the crucial 1,836.20 ZAR barrier (102.00 USD).
Meanwhile, the dollar seems to gain support from the post-ECB softness in the risk environment, but it may also face additional pressures due to the Fed’s data-dependent position amid ongoing disinflation and a cooling labour market.
Speculations that the July rate increase may be the last in the current cycle is also expected to apply pressure on the dollar.
What to Watch in the US This Week
Critical US events include the final Manufacturing PMI, ISM Manufacturing, Construction Spending (Tuesday) – MBA Mortgage Applications, ADP Employment Change (Wednesday) – Initial Jobless Claims, Final Services PMI, ISM Services PMI, Factory Orders (Thursday) – Nonfarm Payrolls, Unemployment Rate (Friday).
Topical Issues in the Background
Debate continues on whether the US economy is headed for a soft or hard landing. Terminal interest rates are nearing their peak amidst speculation of rate cuts in late 2023 or early 2024. Geopolitical tensions with Russia and China remain a concern, as well as the ongoing US-China trade conflict.
USD Index Significant Levels
Currently, the index is up 0.08% at 1,836.01 ZAR (101.93 USD). Breaking 1,851.16 ZAR (102.55 USD – 55-day SMA) would pave the way to 1,865.61 ZAR (103.54 USD – weekly high June 30) and finally 1,869.13 ZAR (103.69 USD – 200-day SMA). Conversely, immediate support appears at 1,808.96 ZAR (100.55 USD – weekly low July 27), followed by 1,802.00 ZAR (100.00 USD – psychological level), and then 1,794.32 ZAR (99.57 USD – 2023 low July 13).