The U.S. dollar index (DXY) took a 1.19% nosedive to an intraday low of 94.836 on Friday after the global financial information and services firm Markit, said its U.S. Manufacturing Flash Purchasing Managers' (PMI) Index fell to 52.9 in August, its lowest since October 2013. A PMI reading above 50 indicates expansion in the sector. The August PMI index is below the final July reading of 53.8% and missed the economists' forecast by Reuters of 54.0.

Separately, Markit said that its August Eurozone Composite Flash PMI Index came in at 54.1, compared to July's reading of 53.9, and easily beat economists' expectations of 53.8.

The U.S. dollar index has been under selling pressure since Wednesday, after the Federal Reserve released the minutes from the July 28-29 Federal Open Market Committee (FOMC) meeting. According to the minutes, “Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point,”. No one knows what the statement really means as personal consumption expenditures (PCE) inflation continues to run below the FOMC's longer-run objective of 2%.

The Core PCE inflation, which excludes food and energy prices, was 1-1/4% over the 12 months ending in May, restrained in part by declines in the prices of non-energy imports, said the minutes. The latest data from the Bureau of Economic Analysis released after the FOMC meeting showed that the Core PCE trend continues as the June Core PCE index increased 1.29% year-on-year to 109.40, compared to 108.01 for same period last year.

As a matter of fact, the decline in energy prices is not transitory and the renminbi devaluation by the People’s Bank of China (PBoC) will drive the prices of non-energy imports even lower. Thus, a near-term uptick in the PCE and Core PCE are unlikely.

The U.S. 2-Year Treasury Note yield, which has been stuck under 0.75% since the beginning of the year, ticked down to as low as 0.617% on Friday, or down about 9% from the previous close, as the Federal Reserve may be losing control of the short-end of the bond market. The yield spread between the U.S. 2-Year and 10-Year Treasury Notes fell to 1.40 percentage points on Thursday, the lowest level since the end of April. A decline in the short-term borrowing rate, such as the U.S. 2-Year Treasury Note, and flattening of the yield curve could signal that the economy is in trouble.

In July, the IMF gave a warning to the Federal Reserve, for the second time, that it risks stalling the U.S. economy by raising interest rates too early and called for the central bank to delay a move until 2016.

On August 12, we projected the DXY near-term support at 95 if the index falls below the 96.27 level, and a DXY target of 94.20 for the ascending wedge chart pattern breakdown. The headline risks for the U.S. dollar is the Markit Flash U.S. Services PMI, scheduled to be released on August 25. The next support level is 93.39, if the index continues to pull back.