US Dollar Outlook: DXY Responds to Consumer Sentiment and Retail Sales


US Dollar Outlook: DXY Responds to Consumer Sentiment and Retail Sales
  • US Dollar price movement is stronger across all major currencies early Friday
  • USD Bulls miss a miss on headline consumer sentiment, with a focus on inflation
  • The 92.80-price range still poses a formidable technical challenge to the DXY Index

The US Dollar is making gains against its key FX counterparts Friday morning, with the DXY Index increasing by around 0.15% intraday as of the time this article was written. This comes after some important data releases such as monthly retail sales and consumer mood. The headline retail sales increased 0.6% month-overmonth, compared to the consensus forecast of a decline of 0.4%. Core retail sales were up 1.3% versus 0.4%.

Retail sales were better than expected, but the latest consumer sentiment index reading was not as positive. Market wires reported that consumer sentiment for July was 80.8. This was lower than the consensus estimate of 86.5, and was a -5.5ppt decrease from June's reading. The consumer sentiment index's future expectations and current conditions components showed weakness, with consumers becoming more concerned about inflation.

DXY - US Dollar INDEX PRICE CHART: 4-HOUR TIME FRAME (28 June to 16 July 2021).

The consumer sentiment report, however, showed that consumers' inflation expectations for the year 2008 were 4.8%. This is its highest reading since August 2008. This could increase Fed taper speculation and maintain upward pressure on US Dollar. However, a chart of broader US Dollar Index shows that the DXY faces strong technical resistance from the 92.80 price level.

This barrier is likely to be invalidated, opening the door for a topside breakout and an extended push by US Dollar bears. However, the Fed's persistent transitory inflation narrative and long-term consumer inflation expectations at 2.9% make it more likely that US Dollar bears will lose recent strength, barring any systemic deterioration of risk appetite.

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