The US dollar has resumed its decline following a corrective recovery, as the support behind the currency proved insufficient to sustain the rebound. Selling pressure increased as long-term US Treasury yields fell amid reports that the US Treasury was prepared to expand its bond-buyback operations. Larger buybacks support the government bond market and can contribute to lower yields, reducing the dollar’s interest-rate advantage and limiting its recovery.
At the same time, geopolitical tensions surrounding Iran continue to support demand for the US dollar as a safe-haven asset. So far, however, this factor has not been strong enough to generate a sustained appreciation in the currency.
Today, markets will focus on a fresh batch of US economic data. Revised second-quarter GDP figures, the core Personal Consumption Expenditures (PCE) price index, personal income and spending data, and durable goods orders are all due to be released.
According to forecasts, US GDP growth could be revised down from 2.1% to 1.5%, while the core PCE price index is expected to show annual growth of 3.3% and a monthly increase of 0.2%. A combination of slower economic growth and persistent inflationary pressure could complicate the Federal Reserve’s policy decisions, leaving policymakers to balance the risk of economic weakness against the need to keep inflation under control.
Markets will also be watching comments from Federal Reserve officials for clues about how policymakers are assessing current inflation risks and signs of an economic slowdown.
USD/CHF
USD/CHF fell back towards 0.8000 after recovering to 0.8045 last week, forming a dark cloud cover pattern in the process.
If dollar weakness continues, the pair could break below 0.7980 and move towards the recent low around 0.7950. The bearish scenario would be invalidated if the price establishes itself firmly above 0.8045.
Key events for USD/CHF:
- today at 11:00 (GMT+3): Swiss ZEW Economic Expectations;
- today at 15:30 (GMT+3): US core Personal Consumption Expenditures (PCE) price index;
- today at 15:30 (GMT+3): US GDP.
USD/CAD
USD/CAD has also resumed its decline following an unsuccessful attempt to extend the recent recovery. Technical analysis points to a potential move towards the 1.3740–1.3780 area, with a dark cloud cover pattern having formed on the daily chart.
A renewed corrective recovery could develop if the pair establishes itself firmly above 1.3870.
Key events for USD/CAD:
- today at 15:30 (GMT+3): Canadian wholesale sales;
- today at 17:30 (GMT+3): US crude oil inventories;
- today at 18:45 (GMT+3): speech by Thomas Barkin, a member of the Federal Open Market Committee (FOMC).
The dollar’s recovery is losing momentum as Treasury yields decline, although geopolitical tensions continue to provide some support for the US currency as a safe-haven asset.
The next moves in USD/CAD and USD/CHF will depend heavily on today’s US economic data and the market’s reaction to fresh signals from the Federal Reserve. Weaker-than-expected figures could increase pressure on the dollar and support further declines in both pairs, while stronger data could restore some demand for the US currency and trigger another corrective recovery.
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