US Dollar sees a little bounce ahead of Fed

• Fed easing expectations continue to mount, and markets are pricing in high odds of 50 bps cut.
• Analysts expect 25 bps cut on Wednesday.
• US Retail Sales data has little impact on the USD.

The US Dollar remained stable at the start of the US trading session on Tuesday, showing little response to the release of Retail Sales data as anticipated. The US Dollar Index (DXY), which is a measure of the Greenback against a basket of six currencies, edged slightly higher, pulling away from its low for the year but with only a minimal recovery. Federal Reserve (Fed) easing has become more likely, with market pricing implying a 50 bps cut, while most analysts still predict a 25 bps cut.

The US economy is experiencing growth above historical norms, indicating that the market is pricing in overly optimistic expectations of monetary policy easing. This surge in optimism may be excessive as the economic data suggests that the Fed is likely to maintain its current stance of gradual interest rate increases.

Daily digest market movers: US Dollar rises mildly, investors still anticipate aggressive Fed easing

• Market expectations for aggressive Fed easing have increased ahead of Wednesday's FOMC decision.
• Most analysts anticipate a 25-basis-point cut, but a handful predict a larger 50-basis-point cut.
• The market is pricing in a 65% chance of a 50 bps cut and 250 bps of easing over the next 12 months.
• The market's aggressive rate path expectations are unlikely to be validated by the updated Dot Plot.
• Risks of a dovish surprise from the Fed remain, but not all members are expected to support such a move.
• On the data front, according to the US Census Bureau's report on Tuesday, Retail Sales in the US grew by 0.1% in August, reaching $710.8 billion.
• This followed a 1.1% rise in July and surpassed market predictions, which had anticipated a 0.2% decline. However, excluding automobile sales, Retail Sales increased by 0.1%, falling short of the expected 0.2% growth.

DXY technical outlook: DXY indicators signal bearish momentum but find support

DXY technical indicators moved lower into a bearish zone. The index fell beneath its 20-day Simple Moving Average (SMA), signaling a decrease in buying momentum. The Relative Strength Index (RSI) remains below 50, indicating a bearish trend but somewhat flattening. The Moving Average Convergence Divergence (MACD) indicator is displaying diminished green bars, suggesting weak buying pressure.

Support levels lie at 100.50, 100.30 and 100.00, while resistance is found at 101.00, 101.30 and 101.60.