The U.S. Dollar experiences a decline in anticipation of upcoming U.S. PMI numbers.
- The US Dollar is once again on the verge of a downward break.
- As traders adopt a risk-on approach, buoyed by positive German and EU PMI figures.
- The US Dollar Index encounters pressure, particularly around the 103-handle.
On Wednesday, the US Dollar (USD) weakens against the majority of major currencies as market sentiment drives it lower. Initial movements follow positive German and European Purchasing Manager Indexes (PMIs), despite remaining in contraction. If US PMI numbers contract further later today, it could lead to a decline in the Greenback.
Economically, as previously noted, US PMI figures are scheduled for release this afternoon, with particular emphasis on the Manufacturing number (projected to stay steady at 47.9). Given the current market dynamics, there is a possibility of an extended Greenback sell-off, resulting in a decline for the DXY.
USD Index Technical Analysis: PMI Ahead
The US Dollar Index (DXY) has declined following positive Manufacturing PMI reports from Europe. Despite both European figures still being in contraction, it does not imply that the EU is surpassing the US or completely out of economic challenges. The upcoming US PMI numbers in the afternoon could lead to further Greenback losses if they disappoint or propel it back to its earlier Asian trading level if they exceed expectations.
Several economic data points could strengthen the argument for the DXY to surpass those two moving averages and surge. The initial resistance level on the upside is at 104.44, represented by the 100-day SMA. If this level is breached, there may be no hindrance for the DXY to advance towards either 105.88 or 107.20, the September high.
It appears that a bull trap is unfolding, trapping US Dollar bulls who entered the market as it surpassed both the 55-day and 200-day SMA last week. There’s potential for significant downward price action, compelling these bulls to sell their positions at a loss. This could lead the DXY to initially retreat to 102.60, along the ascending trend line from September. A breach below this level could open the path towards 102.00.