Navigating US crosswinds

Bullish US Outlook

The latest data presents a positive outlook for the US economy, bolstering confidence in its prospects and potentially strengthening the Dollar Index (DXY). Initial jobless claims decreased to 201,000, signaling a robust labor market, typically indicative of economic growth. Wage growth remained strong, with average hourly earnings up by 0.6%, suggesting consumers may still have purchasing power despite the recent decline in retail sales.


Additionally, the ongoing battle against inflation poses challenges as progress in taming it has yet to inspire enough confidence for a decisive victory. While Fed officials have hinted at a potential peak in interest rates, they stressed the need for further evidence of cooling inflation before considering easing measures. This cautious approach has shifted market expectations for rate cuts from March to June and provided short-term strength to the Dollar amid expectations of delayed rate adjustments.


Downside Risks to Bullish Outlook

However, despite these positive indicators, the bullish outlook has notable downside risks. The unexpected 0.8% decline in retail sales raises concerns about consumer spending, a crucial driver of economic activity. This decline suggests potential headwinds for consumer activity, which could dampen economic momentum in the near term.

Furthermore, while inflationary pressures persist, the Consumer Price Index (CPI) has moderated slightly compared to previous months. This moderation could alleviate concerns about runaway inflation, paving the way for the Federal Reserve to initiate its easing cycle in the latter part of the year. These factors contribute to a nuanced economic landscape, as traders weigh robust labor markets and wage growth against weaker consumption.


Technical Perspective


From a technical perspective, prices are currently within an ascending channel and nearing the 103.20 support zone, which coincides with the Fibonacci confluence levels. Maintaining above this zone might trigger a continuation of the rally toward the resistance zone at 105.00. Conversely, a breakout below the 103.20 support level could lead to a downward movement, with 102.00 as the next potential support target. Stochastic is nearing the oversold region, which could suggest the potential for a price rebound.