The Rate Outlook the Bad News is Discounted for the USD.

The USD pulled back on the view that the Fed will do one more rate hike in July and then start to cut in early 2024 this is now discounted and we think the Fed cutting rates is highly unlikely – the USD has a good yield against most other major currencies and other central banks are also near a peak in rates. The yield is good but the USD is unique in that it offers safety due to its global reserve status.

Low Macro Risk Bearish the USD But Unlikely to Continue

The market at the moment sees low macro risks to financial markets ahead which we can see on the chart below but this could soon change:

A Slowing Global Economy is Bullish the USD

The global economy is slowing and facing recession – China is the engine room of the global economy and after a brief bounce after the reopening after COVID the economy is slowing and set to slow further which we will cover in more detail in another article at the weekend. In terms of global PMIs they have turned down and China is seeing slowing global growth which we can see on the charts below.

Sentiment

Speculators have sold the USD heavily which we can see on the charts below, in the DXY and also a country-by-country breakdown.

In conclusion

The USD looks set for more strength to speculators are taken out on stop and if we get risk off this will give the USD an additional boost.

Technical Analysis

The major levels of support and resistance to look out for in terms of the DXY in our view are on the chart below.