Trade of the Week: USDInd set for rollercoaster ride?

• USDInd ↑ 0.9% MTD
  

• US Presidential debate & PCE deflators in focus

• Over past year PCE deflators triggered moves of 0.3% ↑ or ↓
  

• Technical levels – 106.50, 105.60 & 105.20
  

Watch this space because FXTM’s USDInd could be jolted by economic and political forces!

It’s all about the Biden vs. Trump faceoff and US PCE deflators which may translate to heightened dollar volatility this week.

After securing a weekly close above the 105.60 resistance, prices are turning increasingly bullish. However, the next major level for bulls to crack can be found at 106.50.

Note: FXTM’s USDInd tracks the US Dollar Index.  This measures how the dollar performs against a basket of six different G10 currencies, including the Euro, British Pound, Japanese Yen, and Canadian dollar.

The lowdown…

Dollar bulls have made a return this month thanks to stronger-than-expected US data including the solid US May jobs report. Last Friday, reports revealed that both U.S manufacturing and services sectors expanded in June – further trimming rate cut bets.

The USDInd could end H1 with a bang, here are 3 reasons why:

  1) Biden vs. Trump: US Presidential debate

The spotlight shines on the first US presidential debate on Thursday, June 27th.

Investors will most likely focus on every little detail, starting from mental states, messaging, overall accuracy of information, and policies among other things. There are just over four months till the US presidential election with national polls suggesting that Biden and Trump are neck-and-neck! This could add more flavour to the upcoming debate which may shape the overall election result.

• Whatever the outcome of this big political event, it could trigger fresh volatility for the dollar and across financial markets.

  2) US May PCE deflators

On the data front, the Fed’s preferred inflation gauge – the Core PCE could influence expectations about when the central bank will cut rates in 2024.

Markets are forecasting PCE deflators to cool in May with the core figure falling to 2.6% year-on-year compared with the 2.8% seen in the previous month. Ultimately, more signs of cooling price pressures could boost bets around lower US interest rates.

Traders are currently pricing in a 73% probability of a 25-basis point cut in September with a move fully priced in by November.

It will be wise to keep an eye on speeches by numerous Fed officials and other US data that could also move the USDInd.

Golden nugget: Over the past year, the US PCE deflators have triggered upside moves of as much as 0.3% or declines of 0.3% in a 6-hour window post-release.

• The USDInd may slip on more signs of cooling price pressures in the United States, with dovish comments by Fed officials fuelling the downside.

• Should the PCE deflators print higher than expected, this may support USDInd bulls as markets further push back Fed cut expectations.

  3) Technical forces

Prices are trending higher on the daily charts with support levels at 105.60 and 105.20.

There have been consistently higher highs and lows, while the candlesticks are trading above the 50, 100 and 200-day SMA.

• Should 105.60 prove to be reliable support, this could encourage an incline towards 106.50.

• A daily close below 105.60 could see prices re-test 105.20.

• Weakness below 105.20 may open the doors towards the 100-day SMA at 104.70.