US Dollar Gains Alongside Soaring Stocks, Eyes Key Data Release

The US Dollar (USD) is appreciating on Wednesday, mirroring a sharp upward surge in US equity markets. While no single catalyst immediately explains the reversal, the move could be short-lived. Market focus remains on upcoming economic releases, including Thursday’s US Gross Domestic Product (GDP) and Friday’s Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation metric.

Wednesday’s US economic calendar is relatively sparse, featuring only the Mortgage Bankers Association’s weekly Mortgage Applications report. However, market participants will be listening closely to Fed Board Member Christopher Waller, a known hawk, as he delivers a speech on the US Economic Outlook at the Economic Club of New York. Any shifts in Waller’s projections regarding interest rate cuts could significantly impact the Dollar’s valuation.

The US Dollar Index (DXY) is currently consolidating above 104.00. Traders appear determined to defend this level ahead of the critical GDP and PCE data, anticipating that these releases will outperform forecasts and bolster the US Dollar. Growing conviction suggests a resilient US economy accompanied by resurgent inflation. If so, the Fed may not pursue the anticipated three interest rate cuts this year, favoring a soft landing scenario.

Technical Outlook

The DXY faces initial resistance near 104.60, last week’s rally peak. Sustained movement above this level opens the door to 104.96, then potentially 105.00. A climb above 105.12 would push the Relative Strength Index (RSI) into overbought territory.

While the 200-day, 100-day, and 55-day Simple Moving Averages (SMAs) offer potential support levels at 103.74, 103.48, and 103.64 respectively, the recent bullish momentum makes testing these levels less likely. The 103.00 figure also appears less vulnerable, as the recent downturn stalled well above it.