US Dollar slips on risk-on sentiment amidst dovish Fed narrative

• DXY Index declines as investors favor riskier assets following Powell's dovish speech.
• Powell hinted that the economic outlook is coming closer to the Fed's goal.
• Markets have already priced in a September cut.

The US Dollar (USD), measured by the US Dollar Index (DXY), resumed its decline on Friday, falling from below the 101.00 level due to a shift toward riskier investments. This shift was influenced by the dovish tone of US Federal Reserve (Fed) Chairman Jerome Powell's speech at Jackson Hole.

Despite concerns about decelerating job growth, Fed officials, including Powell, maintain positive views on the US labor market. Data suggests that the US economy continues to expand above trend, suggesting that the market may be overestimating the need for rapid monetary easing.

Daily digest market movers: US Dollar softens after Powell's speech

• Chair Powell stated that inflation has significantly declined, bringing the economy closer to the Fed's 2% target.
• Powell observed a noticeable cooling in the labor market, suggesting the economy is no longer overheated.
• Fed Chair also noted that the balance of risks has shifted, with reduced inflation risks but heightened concerns about employment.
• Chair Powell stated that future rate cuts will be determined by data, economic outlook and the balance of risks.
• Market participants have increased bets on a Fed rate cut in response to Powell's comments, with a September cut now being fully priced in.

DXY technical outlook: Bearish bias is clearer, correction possible

The technical outlook of the DXY Index remains bearish. However, buyers have been attempting to initiate an uptrend. The index remains below its 20, 100 and 200-day Simple Moving Averages (SMAs), indicating a bearish bias. The Relative Strength Index (RSI) is below 30, indicating continued and over-extended selling pressure. The Moving Average Convergence Divergence (MACD) remains in negative territory with red bars.

That being said, as indicators show oversold signals, there is potential for a correction to the upside.

Support Levels: 101.00, 100.50, 100.30

Resistance Levels: 101.50, 101.80, 102.20.