US Dollar sees some light at the start of the week, dovish Fed to limit the upside

• US Dollar recovers after declining on Friday due to Powell's dovish remarks.
• Markets anticipate 100 bps of easing by year-end and 200 bps total over the next 12 months.
• Focus turns to PCE data later this week.

The US Dollar, measured by the US Dollar Index (DXY), regained some ground on Monday, hovering around 101.00 after it had plummeting last week. Friday’s decline was attributed to Federal Reserve (Fed) Chair Jerome Powell's dovish remarks at the Jackson Hole Symposium, hinting at a potential shift toward a looser monetary policy stance by the central bank. This, in turn, caused the 10-year US yield to dip beneath 3.8%, which weighed heavily on the USD.

Despite positive economic growth that exceeds expectations, the market's eagerness for aggressive monetary easing appears misplaced. The current situation warrants caution, as the totality of data points toward a disconnect between economic fundamentals and market pricing.

Daily digest market movers: US Dollar remains vulnerable following Powell's dovish remarks

• Markets digest Powell’s dovish Jackson Hole speech with further easing expected.
• Powell signaled a shift in Fed policy, stating that "the time has come for policy to adjust."
• He also emphasized the importance of the labor market, noting an "unmistakable" slowdown.
• 100 bps of easing is predicted by year-end, with 200 bps total over the next 12 months.
• Odds of a 50 bps cut in September are 30-35%, contingent on upcoming data.
• Market participants await the August NFP report for further guidance on the Fed's path.
• This Friday’s Personal Consumption Expenditures (PCE) figures from July will be key.

DXY technical outlook: DXY finds support, bullish momentum might build

The DXY index has found support at its lowest levels since December, indicating a temporary pause in selling pressure. The Relative Strength Index (RSI) remains deep in oversold territory, suggesting that there is potential for further upward corrective movements.

The Moving Average Convergence Divergence (MACD) is exhibiting steady red bars, aligning with the RSI and providing additional evidence of potential upward momentum as there is more room to correct. That being said, there are no clear signs of a reversal and the DXY is exposed for further downside.

Key support levels to monitor are 100.50, 100.30 and 100.00, while resistance levels to watch are 101.00, 101.50 and 101.80.