US Dollar sees green after Monday’s volatility

• After a shaky Monday, the USD recovered, and Tuesday is unlikely to see much movement.
• Amid renewed market sentiment, US Dollar (DXY) gains and remains near the 103.00 mark.
• The market is pricing in a 100 bps rate cut by year-end.

On Tuesday, the US Dollar (USD), measured by the DXY Index, is capitalizing on recent recovery gains near the 103.00 mark subsequent to an improvement in market sentiment. In addition, caution due to absent news about the Middle Eastern conflict between Iran and Israel is also backing the Dollar’s current position. However, the Greenback’s trajectory throughout the day could potentially be limited by the high dovish bets on the Federal Reserve (Fed).

Markets are seeing that the US economic outlook is weak due to July’s soft data and seem to be fearing a recession, while officials are asking the public not to overreact to one data point.

Daily digest market movers: USD upside limited as markets price in 100 bps Fed easing by year-end

• Despite the USD gains, its potential is limited by the steady dovish bets on the Fed.
• Market anticipates a rate cut in September, leading to subsequent USD weakening.
• In addition, market is pricing in a 100 bps rate cut by year-end, with some odds of an additional 25 bps.
• Over 200 bps of total easing is priced in for the coming year, barring a deep US recession.
• Market anxiously awaiting incoming data to assess Fed easing narrative.

DXY technical outlook: Bulls step in, but bears still command

On the technical side, the DXY outlook turned bearish after a sharp decline in the Relative Strength Index (RSI), which fell into oversold territory in the last few trading sessions but seemed to recover on Tuesday. However, the outlook remains bearish, with the index still trading below the 20, 100 and 200-day Simple Moving Averages (SMAs).

Supports: 102.50, 102.20, 102.00

Resistances: 103.00, 103.50, 104.00