US Dollar: Rebound Attempt Set to Face Pressure With Key GDP, PCE Data Looming

• The dollar index shows early signs of recovery as traders anticipate pivotal economic data this week.
• Key speeches from Fed members could reshape market expectations amid ongoing geopolitical tensions.
• Watch for crucial resistance and support levels in the DXY as traders navigate potential volatility.
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As the new week unfolds, the dollar index is showing signs of recovery after last week's bold 50 basis point rate cut by the Federal Reserve.

The Fed's aggressive move aims to tackle labor market risks and recession fears, but it also injects uncertainty into the markets.

Traders are gearing up for fresh insights from upcoming economic indicators that could shape their strategies.

Currently, futures markets reflect a 50% chance of another 50 basis point cut in November, making this week’s developments crucial for market expectations.

As the US dollar seeks to bounce back from a key support level, the upcoming GDP and PCE reports will be pivotal in determining the greenback’s trajectory.

Fed Members’ Speeches Under Close Watch

This week, at least nine Fed members, including Chair Powell, are set to speak. Their insights following the Fed's decision could greatly impact market direction.

On Friday, the Personal Consumption Expenditures (PCE) index—a key inflation gauge for the Fed—will be released.

This data could either confirm that inflation is moving towards the target or, if it exceeds expectations, lead to increased demand for the dollar against six major currencies. Unexpected inflation could slow the pace of rate cuts.

Additionally, the markets will watch the upcoming $1.2 trillion funding deadline, crucial for preventing a government shutdown and financing operations through the year's end.

Congress has reached an agreement on a short-term spending bill to fund federal agencies for about three months, avoiding a partial shutdown as the new fiscal year begins on October 1. This agreement eases potential pressures that could strain the economy as elections approach.

Geopolitical risks also weigh heavily on the markets. Escalating tensions in the Middle East raise concerns about regional conflicts, likely boosting gold demand while reinforcing the dollar's status as a safe haven, which supports the DXY index.

Overall, stocks’ decline at the end of last week reflects a waning risk appetite. The Fed's decision alone may not sustain market enthusiasm, making this week’s statements pivotal for future direction.

Critical Levels for the DXY

The DXY index has started the week by recovering toward the 101 level. Last week, it held its average support around 100.5, indicating this area remains a crucial demand zone.

As risk appetite declines, demand for the dollar is rising, although the DXY has yet to show clear signs of recovery.

DXY Price Chart

For the DXY to strengthen further, it must break through resistance levels at 101.4 and then 101.9. If it fails to close above 101.4 on a daily basis, it could signal a renewed increase in market risk perception, leading to a potential downward trend in the dollar index, with the primary support level at 100.5 under close scrutiny.

If this support level is breached, the index might drop to around 99 in the short term. Expect data-driven pricing in the coming days, resulting in potential volatility based on economic releases and commentary.

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