US Dollar Outlook: DXY Reacts to Retail Sales, Consumer Sentiment

US DOLLAR PRICE OUTLOOK: CONSUMER INFLATION EXPECTATIONS STIR TAPER DEBATE

• US Dollar price action is stronger across the board of major currency pairs early Friday
• USD bulls overlooking a miss on headline consumer sentiment with focus on inflation
• The DXY Index still faces formidable technical resistance posed by the 92.80-price level

The US Dollar is gaining ground against key FX peers Friday morning with the broader DXY Index up around 0.15% intraday at the time of writing. This is in the wake of some high-impact data releases like monthly retail sales and consumer sentiment. Headline retail sales rose 0.6% month-over-month versus the consensus forecast looking for a -0.4% decline with core retail sales up 1.3% versus 0.4% expected.

Better-than-expected retail sales is contrasted by a miss on the latest consumer sentiment index reading. Headline consumer sentiment crossed market wires at 80.8 for July, which was below consensus estimates of 86.5 and marked a -5.5ppt decline from June’s reading. Both the current conditions and future expectations components of the consumer sentiment index showed weakness with inflation concerns being increasingly prevalent amongst consumers.

DXY – US DOLLAR INDEX PRICE CHART: 4-HOUR TIME FRAME (28 JUNE TO 16 JULY 2021)

Chart by @RichDvorakFX created using TradingView

That said, the consumer sentiment report showed one-year consumer inflation expectations hitting 4.8% and its highest reading since August 2008. This has potential to intensify Fed taper speculation and help maintain upward pressure on the US Dollar in turn. Looking at a chart of the broader US Dollar Index, though, we can see that the DXY faces formidable technical resistance posed by the 92.80-price level nevertheless.

Invalidating this barrier likely opens up the door to a topside breakout and extended push by US Dollar bulls. On the other hand, with long-term consumer inflation expectations little changed at 2.9%, and in light of the Fed’s still-standing transitory inflation narrative, it seems more probable that US Dollar bears fade recent strength barring a systemic deterioration in risk appetite.

— Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight