Market Analysis: The US Dollar Strengthens to a Maximum of Six Months


On Tuesday, financial market participants received a piece of data that gives signs of a slowdown in economies in different countries. Namely, the PMI index (an index of purchasing managers, which is considered a leading economic indicator) showed a negative trend in China and a number of European countries.

This led to a decrease in exchange rates against the US dollar.

Today, the US PMI data will be released, which is likely to affect the current strength of the US dollar index, as well as provide important information for the Fed's interest rate decision. The next meeting will be held on September 19-20.

According to the CME FEDWatch tool, there is a 7% chance that rates will be raised in September. However, the probability that it will be increased by the end of the year is about 45%.

“I can well imagine, from what I see so far, that we might have to go a bit higher, that we might have to raise the policy rate a bit more,” Cleveland Fed President Loretta Mester said in an interview with German newspaper Börsen-Zeitung published on Tuesday.

The EUR/USD chart shows that the rate is approaching an important support — the level of 1.07.

Bearish arguments:

→ throughout August, the EUR/USD rate was in a downtrend. And trends can last longer than market participants think. Growth resistance can be expected from the median line of the channel and its upper border.

→ PMI data in the US may be stronger than in Europe, and this will further strengthen the dollar against the euro.

→ level 1.0838 is seen as a local resistance.

Bulls can look to the 1.07 level, an important support that reversed the bearish momentum in the summer. It is possible that something similar will happen again in the fall. In case of a bearish breakout, the 1.07 level will become an important resistance.

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