The decline of the dollar, strange as it may seem in the current situation, continues today, and for the third trading day in a row. If we attributed its decline on Friday to the fixation of some of the many long positions at the end of the week, then the continued decline of the dollar may begin to raise doubts about its further strengthening after months of growth.

At the time of writing this article, futures for the dollar index (DXY) are trading near 103.74, continuing to decline for the third trading day in a row after reaching a new high since January 2003 at 105.06 on Friday.

Perhaps this is how investors reacted to yesterday's New York Fed report, according to which the manufacturing activity index in the US fell to -11.60 in May from 24.60 in April, which also turned out to be much worse than the forecast for the index to fall to 15.50.

In addition, the US stock market is now seeing a resurgence of investor optimism, which is accompanied by an increase in their propensity to buy risky and profitable stock market assets and to exit the protective dollar. For example, futures on the broad market index S&P 500 rose 5.4% to 4071.0 from last week's low of 3860.0.

Nevertheless, most economists believe that the growth of the dollar will resume: the tightening cycle of monetary policy is just beginning, and the Fed is unlikely to back down from its plans.

Federal Reserve Chairman Jerome Powell recently reaffirmed that the central bank's main task is to regain control of inflation, which has reached highs in the US for the past 40 years. If economic performance is in line with expectations, then Powell considers it appropriate to raise interest rates by 50 basis points at the next two meetings.

Today, during the American trading session, he will speak at an event organized by the Wall Street Journal, and market participants will be waiting for new signals from him regarding the prospects for the Fed's monetary policy. His speech is scheduled to start at 18:00 (GMT). It is possible that Powell will hint at a 75-point rate hike at the next Fed meeting on June 14–15, as the market expects. In this case, the dollar will receive a powerful impetus to strengthen. If Powell maintains the same rhetoric regarding monetary policy, then the dollar may weaken. However, this weakening will not be long-lasting.

Either way, the Fed's stance on taming rising inflation remains the toughest among the world's major central banks. And this is one of the main fundamental factors in favor of further strengthening of the dollar (however, also provided that the Fed's measures turn out to be effective).

In addition, market participants will also pay attention to the publication (at 12:30 GMT) of statistics on the dynamics of retail sales and industrial production in the US for April.

Retail sales is the main indicator of consumer spending in the US, showing the change in retail sales. The "Retail Control Group" indicator evaluates the volume in the entire retail industry and is used to calculate price indices for most goods. A high result strengthens the US dollar, and vice versa, a weak report weakens the dollar. Data worse than the previous period (-0.1% in March, -1.2% in February, +3.8% in January) may negatively affect the dollar in the short term. Forecast for April: +0.5%. At the same time, the volume of retail sales, according to the forecast, grew in April by +0.7% (after growth in March by +0.5%). This is still positive data for the dollar, but let's see how market participants react to it.

From a technical point of view, the price of the DXY index futures broke through an important short-term support level of 103.92, placing an order for further decline. A breakdown of today's local low of 103.63 may increase the negative dynamics.