US Dollar uptrend continues before the Fed meeting gets underway

NEW YORK (July 25) The US Dollar gains traction on Tuesday, with the USD index –  which tracks the USD's valuation against a basket of six major currencies – touching its highest level since July 12 near 101.5 in the early European session. The uptick confirms a bullish start of the week for the Greenback, which posted a fifth straight day of gains on Monday after outperforming its major rivals also during the previous week.

The US economic docket will feature the Conference Board's consumer sentiment survey for July. In June, the Consumer Confidence Index improved to 109.7 from 102.5 in May. The Present Situation Index rose to 155.3 from 148.9 and the Consumer Expectations Index climbed to 79.3 from 71.5.

The US Federal Reserve's two-day policy meeting will start on Tuesday and the interest-rate decision will be announced on Wednesday.

Daily digest market movers: US Dollar builds on Monday's gains

• Wall Street's main indexes registered small gains on Monday. US stock index futures trade mixed in the European session on Tuesday. Google Alphabet and Microsoft will release second-quarter earnings after the closing bell.
• The benchmark 10-year US Treasury bond yield rose nearly 1% on Monday and continued to push higher toward 3.9% early Tuesday, helping the USD stay resilient against its rivals.
• US S&P Global Manufacturing PMI improved to 49.0 in July's flash estimate from 46.3 in June. Services PMI edged lower to 52.4 from 54.4 in the same period. Finally, Composite PMI declined to 52.0 from 53.2, pointing to an ongoing expansion in the private sector's business activity, albeit at a softening pace.
• Commenting on PMI surveys' findings, "July is seeing an unwelcome combination of slower economic growth, weaker job creation, gloomier business confidence and sticky inflation," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. "The overall rate of output growth, measured across manufacturing and services, is consistent with GDP expanding at an annualized quarterly rate of approximately 1.5% at the start of the third quarter," he added.
• According to the CME Group FedWatch Tool, a 25-basis-point Fed rate hike on Wednesday is fully priced in. The probability of the Fed hiking the policy rate one more time before the end of the year stands at 23%.
• Assessing the USD's short-term outlook, "positioning data suggests investors are running reasonably large short Dollar positions into this week's Fed, ECB and BoJ policy meetings," noted economists at ING. "We do like a weaker USD later this year, but the Dollar's recent corrective rally might endure this week if the Fed hangs onto its tightening bias."
• Following Monday's disappointing PMI surveys from Germany, the IFO Institute's monthly survey showed Tuesday that the Business Climate Index declined to 87.3 in July from 88.6 in June. This reading came in weaker than the market expectation of 88.0. 
• Assessing the survey's findings, the IFO surveys head, Klaus Wohlrabe, told Reuters that the German Gross Domestic Product (GDP) was likely to shrink in the third quarter, forcing the Euro to stay under pressure.
• German HOCB Composite PMI fell to 48.3 in Early July from 50.6 in June. Commenting on the data, “There is an increased probability that the economy will be in recession in the second half of the year," said Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank (HCOB).

Technical analysis: US Dollar Index rises toward key resistance 

The US Dollar Index (DXY) closes in on 101.70, where the 20-day Simple Moving Average (SMA) aligns as dynamic resistance. Meanwhile, the Relative Strength Index (RSI) indicator on the daily chart advanced to 50, suggesting that DXY is about to turn bullish.

Once above 101.70, 102.00 (static level, former support) could act as strong resistance. A daily close above this level could bring in additional buyers and open the door for an extended uptrend toward 102.50-102.60 (50-day SMA, 100-day SMA).

Looking south, first support is located at 101.00 (former resistance, static level) before 100.50 (static level) and 100.00 (psychological level, static level).

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