US Dollar mixed as PMI releases shake up markets

• The US Dollar edges slightly lower at the start of the week. 
• Traders face a lot of noise, with PMIs, European political news, and Chinese data triggering market moves. 
• The US Dollar Index (DXY) trades back below 107.00 and looks to settle for a range-trading move into 2025.

The US Dollar (USD) trades slightly lower on Monday after a string of data and headlines that took away the attention from the US Federal Reserve's rate decision, which will be released later this week on Wednesday. 

The first move on Monday was initiated after Chinese Retail Sales came in at 3.0% for November, below analysts' lowest estimate of 4.2% and far below the median estimate of 5.0%. Clearly, the stimulus measures the Chinese government has implemented are not having the impact markets expected them to.

Meanwhile, preliminary S&P Global and Hamburg Commercial Bank (HCOB) Purchase Managers Index (PMI) data for December have been released for European countries and the Eurozone. Overall, manufacturing is sinking further into contraction in both France and Germany. The sole outlier is German Services, which is popping back into expansion at 51.0 against the 49.3 expected. 

German Chancellor Olaf Scholz will be able to use that last data point in his favor during his scheduled meeting at the Bundestag later this Monday, where the chancellor is facing a vote of no confidence. If he loses, the German government will fall, following France's, with snap elections set to take place possibly on February 23.      

The US economic calendar includes the release of the preliminary S&P Global PMI for December, which could be used to compare the US with European data and might drive a firm move in favor of the US Dollar if the US services sector expands further, outpacing the European one. 

Daily digest market movers: A lot of moving parts at the start of the week

• China's Retail Sales data for November missed market estimates by coming in at 3.0% year-over-year, whereas 4.6% was expected, pushing the Greenback higher against the Chinese Yuan (USD/CNH).
• The surprise upbeat German Services PMI, combined with the possibility of an announcement about German snap elections, is pushing the Euro higher against the US Dollar (EUR/USD).
• At 14:45 GMT, the US preliminary S&P Global PMI data for December will be released:
  • Services PMI is expected to soften to 55.7 from 56.1 in November.
  • The Manufacturing component should fall further into contraction to 49.4 from 49.7.
  • The services component will be the leading element, with a weaker US Dollar should services shrink substantially, whereas an upbeat number would trigger more US Dollar strength across the board. 
• Equities are not enjoying a good start to the week, with Asian equities dragging European equities down. US futures are trying to break away and are marginally in the green. 
• The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 97.1%. 
• The US 10-year benchmark rate trades at 4.39%, just below the 4.40% from last week. 

US Dollar Index Technical Analysis: Difficult positioning ahead of uncertainty

The US Dollar Index (DXY) shows signs of fatigue, with price action slowing down and starting to trade sideways. Traders feel comfortable with what has been priced in and are probably awaiting anything else until President-elect Donald Trump takes office or should US data fuel any move. The uncertainty on which measures Trump will put in place and which are just threats used as bargaining chips could keep the DXY in a chokehold until late January. 

On the upside, 107.00 remains a key level that needs to be reclaimed before considering 108.00. When and if that finally happens, the fresh 2-year high at 108.07, recorded on November 22, is the next level to watch for. 

Looking down, 106.52 is the new first supportive level in case of profit-taking. Next in line is the pivotal level at 105.53 (the April 11 high), which comes into play before heading into the 104-region. Should the DXY fall towards 104.00, the 200-day Simple Moving Average at 104.19 should catch any falling knife formation. 

US Dollar Index: Daily Chart