Dollar Rally Pauses While Traders Await Powell on Thursday

Empire State Manufacturing FallsThe latest Empire State Manufacturing Index released today showed that business conditions worsened last month in the US. The index fell to -4.6 from the prior month’s 1.9 reading. While this was a little better than the -6.4 forecast, the results still made for gloomy reading and add to the expectation that the Fed will keep rates on hold near-term. Looking at the breakdown of the data, the decline was driven by a fall in new orders along with a weaker 6-month outlook. On a brighter note, employment was seen moving back into positive territory. Meanwhile, the prices paid component remain elevated.US Data and Fed Comments in FocusLooking ahead this week, the focus for USD will be on the latest comments from Powell (due on Thursday), along with the ongoing conflict in the Midde East. Safe-haven demand is keeping USD supported for offsetting the fall back in near-term rate hike expectations. We’ll also have a raft of tier-2 US data to help add further colour this week along with comments from a raft of Fed members. Unemployment claims will also be closely watched on Thursday on the back of WARN issuing an update this week forecasting an uptick in jobless claims. The group noted that an increasing number of companies are signalling upcoming layoffs and site closures in coming months.Technical ViewsDXYThe correction lower in DXY from the 107.57 level has seen the market finding support ahead of the 104.95 level. With the outlook still bullish while above here, the focus is on a further break higher and a test of the 109.18 level next. Momentum studies have dropped, suggesting there is plenty of room for a fresh push higher. To the downside, however, if we slip back below 104.95, 103.48 is the next support to note.