Dollar Index Dips in European Trading Amid Waning Bounce and Dovish Fed Expectations

The dollar index ticked lower during European trading on Thursday, as the bounce from Monday’s eight-month low of 101.94 began to lose momentum.

The daily chart presents a weak outlook with moving averages in bearish configuration and strong negative momentum, indicating that any recovery may be limited before bears regain control.

The dollar has been pressured by the recent strong rally in the yen, which was a key factor in the latest decline. Additionally, expectations for more dovish Fed action on interest rates are anticipated to further weigh on the US currency.

Recent economic data suggest a slowing US economy and heightened recession risks, narrowing the central bank’s room for maneuver. This has led to a sharp increase in bets for a 50-basis-point cut in September, contrary to earlier expectations of a 25-basis-point reduction, with even rumors of an emergency rate cut before the September meeting.

While partial market stabilization has eased tensions for now, the outlook remains overshadowed by these factors.

The market awaits the release of the US July inflation report (due next week) and Fed Chair Powell’s speech at the Jackson Hole symposium (scheduled for August 22-24) for further insights.

Immediate support is at 102.55; a loss of this level would further weaken the near-term outlook, while a rise above the upper pivot at 103.24 would mitigate downside risks.

Res: 103.24; 103.55; 103.64; 103.93
Sup: 102.70; 102.55; 101.94; 101.75