Forex market update: the forex market has been experiencing volatility as the US Dollar (USD) grapples with mixed economic data.
The US Dollar Index (DXY), which measures the USD against a basket of major currencies, faced challenges on Wednesday, struggling to recover losses and declining against most peers. Despite stronger-than-expected ADP Employment figures and S&P Global PMI data, the ISM Services PMI fell short of forecasts, raising concerns about the robustness of the US economy.
Fed Sentiment Index: The index, which previously stood at 130.00, has cooled, indicating a less hawkish stance from Federal Reserve policymakers. This shift has led traders to reevaluate the Fed's interest rate trajectory, contributing to the DXY's weak performance around the support level of 107.35.
ADP Employment Report: The report indicated a rise in private sector employment, with an increase of 183,000 jobs in January, surpassing the forecast of 150,000. Job creation was primarily driven by consumer-facing industries, although manufacturing showed weaker gains.
S&P Global PMI: The final readings for January showed slight upward revisions, with the Services PMI at 52.9 (compared to the expected 52.8) and the Composite PMI at 52.7 (up from 52.4).
ISM Services PMI: This index disappointed at 52.8, missing the anticipated 54.3. Additionally, the Prices Paid index decreased to 60.4 from 64.4, suggesting softer inflationary pressures.
All eyes are now on Friday’s Nonfarm Payrolls report for January, which is expected to show a weak result that could further weaken the USD.
Technical Outlook for DXY
The DXY's momentum indicators suggest a bearish shift. The cooling of the Fed Sentiment Index from 130.00 aligns with the disappointing ISM data, exerting downward pressure on the USD.
The Relative Strength Index (RSI) has fallen below 50, and the index is trading beneath the 20-day Simple Moving Average (SMA) at 108.50. If this downward trend continues, the next significant support level to watch is the psychological mark of 107.00.
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