US Dollar retreats and consolidates after Retail Sales and Powell’s words

• The USD retreated on Friday after hitting yearly highs near 106.60.
• The market has responded to Fed Chair Powell’s comments with odds of a December cut falling to 60%.
• Retail Sales expanded by 0.4% in October vs. the previous month, surpassing expectations.

The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, failed to secure a sixth consecutive day of gains in a volatile trading Friday. Federal Reserve (Fed) Chair Jerome Powell has instilled uncertainty in the markets by expressing reservations about a December interest rate cut, while markets assess fresh Retail Sales data.

The US Dollar Index retreated slightly after reaching its highest point of the year. However, DXY remains in an uptrend, bolstered by cautious Fed rhetoric and strong economic data, which gives the Greenback an advantage over its peers. 

Daily digest market movers: US Dollar declines as markets assess Powell’s words and Retail Sales

• Fed Chair Powell downplayed the need for aggressive easing, citing economic strength.
• Fed officials, including Kugler, reiterated the need for caution in rate cuts.
• Market odds of a December cut have declined to 60% in fed funds futures and 45% in swaps markets.
• Swaps market anticipates a terminal rate above the Fed’s long-term rate of 2.875%.
• US Retail Sales expanded by 0.4% in October, exceeding expectations and surpassing September’s growth.
• Retail Sales Control Group contracted by 0.1%, while excluding Autos sales grew 0.1% MoM, below consensus.

DXY technical outlook:  Bulls retreat as investors book profits

The DXY’s rapid surge to yearly highs above 107.00 was met with swift profit-taking, indicating a potential shift in market sentiment. The retreat suggests that buyers may have been overextended and a pullback could be in order. 

Indicators including the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) continue showing overbought conditions, so it is likely that the consolidation will continue.