The US dollar continues to lose ground ahead of crucial economic data releases, including the PCE inflation report and US GDP figures, both set to be unveiled this afternoon. Following a peak at $1.0778, the US Dollar Index has faced selling pressure, currently trading near $1.0613.

Key Support Levels to Watch

During the European session, the index slipped below a significant support level of $1.0617, with the next critical support at $1.0577. This level could be tested today, depending on the outcomes of the US economic data. A decisive break below $1.0577 would open the door for a deeper retracement, potentially targeting the more substantial support at $1.0540, aligning with the ascending supportive trendline.

Upside Resistance Levels

On the flip side, if the inflation data surprises to the upside, bolstering the greenback, the first resistance level to monitor is the descending trendline around $1.0640. However, even if this resistance is breached, short-term momentum might still be capped by a stronger resistance level at $1.0676.

What to Expect from the Economic Data

The PCE inflation report, a key measure closely watched by the Federal Reserve, could significantly impact the dollar's trajectory. Higher-than-expected inflation might fuel speculation of further Fed rate hikes, providing temporary support for the dollar. Meanwhile, the GDP data will offer insights into the health of the US economy, adding another layer of complexity to market movements.

Trading Implications

• Bearish Scenario: A break below $1.0577 would signal a potential continuation of the dollar's downtrend, targeting $1.0540.
• Bullish Scenario: Positive data for the US dollar could see the index challenging resistance at $1.0640, with further upside limited by $1.0676.

Traders should remain cautious and closely monitor the PCE inflation and GDP releases, as they are likely to set the tone for the dollar's performance in the near term.