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US Dollar Loses Ground Amid ECB Policy Shift and Technical Weakness

The US Dollar (USD) is currently trading lower against its major peers as the market awaits key economic data releases later this week.

Market Drivers:

  • US Market Holiday: Thin trading volumes due to the US Memorial Day holiday are limiting significant movement in the USD.
  • Shifting ECB Stance: Recent comments from European Central Bank (ECB) officials suggest a potential change in their policy stance, potentially impacting the Euro and other currencies relative to the USD.

Focus on Upcoming Data:

  • US GDP and PCE Data: The second estimate for Q1 US GDP and April’s US Personal Consumption Expenditures (PCE) data scheduled for release later this week will be crucial for gauging the US economic performance and disinflationary trends. This data could significantly influence the USD’s direction.

Technical Analysis (USD Index – DXY):

  • Bearish Signals: The DXY’s weekly and daily chart formations indicate potential weakness in the USD. The weekly close below the 100-week SMA and the daily failure to hold above the 55-day SMA are bearish signs.

Possible Scenarios:

  • USD Upside Resistance: If the USD rebounds, it would need to reclaim the 55-day SMA (104.86) and the 105.00 level for an upside move.
  • USD Downside Risk: A break below the 200-day SMA (104.40) and the 100-day SMA (104.30) could open the door for a further decline towards 103.00 or even lower levels seen earlier in the year.

Overall:

The US Dollar’s current weakness stems from a combination of factors: the lack of US market activity, a potential shift in ECB policy, and technical indicators suggesting a possible downtrend. The upcoming US economic data releases will be critical in determining the USD’s future trajectory.