US DOLLAR WEEKLY FORECAST NEUTRAL

The US Dollar paused a 3-week winning streak with tepid performance

Still-strong labor data keeps path open for the Fed to resume tightening

Bullish Golden Cross between DXY moving averages offers some support

Fundamental Analysis

The US Dollar (DXY) fell about -0.2 percent last week, ending what was a 3-week winning streak. Granted, the past 5-day performance was rather timid. A rather rosy week for market sentiment dampened the demand for haven assets, such as the US Dollar. Keeping the currency afloat was a push higher in Treasury yields towards the end of last week.

The latter was caused by the latest non-farm payrolls report. At face value, it was rather mixed. The country added 339k jobs in May, much higher than the 195k estimate as last month’s addition was revised higher to +294k from +253k. The downside of the report was that the unemployment rate unexpectedly ticked higher to 3.7% from 3.4%. Economists were eyeing a hold of 3.5%.

If you look at the market reaction, financial markets took the data as another robust sign of a still-tight labor market. Earlier in the week, figures showed that there are about 1.8 job openings per unemployed person. The surge in Treasury yields that day reflected cooling Federal Reserve rate cut expectations. Most expectations point to a Fed pause in June, with about a 75% chance of at least one hike in July.

This is what is likely keeping the US Dollar afloat despite a lack of demand for haven assets: a robust economy. The week ahead notably dies down in terms of prominent economic event risk. Initial jobless claims remain some of the timeliest data we have on the labor market. Aside from that, factory orders could be another source of event risk.

As such, the focus for the US Dollar may shift to general risk appetite, especially given that a debt ceiling deal was reached between government officials. With a Fed pause in the cards, and robust economic data driving momentum, the Greenback may mark time in the week ahead, especially if sentiment remains robust and Wall Street continues pushing higher, unperturbed by steady Treasury yields.

Technical Analysis

Technically speaking, a bullish Golden Cross recently formed between the 20- and 50-day Simple Moving Averages on the DXY chart below. That is offering a slight upward directional bias. Immediate resistance seems to be the 23.6% Fibonacci retracement level at 104.11. Further gains beyond that expose the March high of 105.88. In the event of a turn lower, the moving averages may hold as support. Otherwise, extending lower exposes the 100.82 – 101.29 range.

S&P 500 TECHNICAL ANALYSIS

The S&P 500 index broke above the rising wedge on Friday before the close after gapping higher at the open. Price action had previously shown a reluctance to break higher and only managed a gradual grind higher until today’s advance. The RSI shows a move towards overbought territory which suggests there could still be room for a continuation of the latest impulse.

The move has the market in some clear air it would seem, with the August 2022 high of 4325 the next level of resistance for the index. Naturally, support resides at prior resistance at 4196/4200.

Oil Jumps After Saudi Arabia Cuts Output

Oil prices have surged in response to Saudi Arabia’s announcement to reduce output by an additional 1 million barrels per day starting in July. With WTI crude nearing $73 a barrel and Brent crude around $77 a barrel, these developments present potential opportunities for investors to analyze and consider

Turkish Lira Continues to Lose Ground

The Turkish lira continues to weaken against major currencies, showcasing significant changes in exchange rates. Over the past 30 days, we have observed the following losses: EUR/TRY (-5.12%), GBP/TRY (-6.44%), and USD/TRY (-8.32%). It is important to carefully evaluate the associated risks when considering investments in these currency pairs

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