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US Dollar eats into earlier highs with markets rolling over

by FX BrokerNews
  • The US Dollar soars on Tuesday after Asian markets set the scene for a stronger Greenback. 
  • Traders are letting the dust settle over the BoJ rate decision ahead of US housing data. 
  • The US Dollar Index briefly hit 104.00 before retreating a touch. 

On Tuesday, the US Dollar (USD) surged notably, largely attributed to the performance of the Japanese Yen. The Yen, which holds a significant weight of approximately 13% in the US Dollar Index (DXY), saw a nearly 1% depreciation against the Greenback following the Bank of Japan’s (BoJ) announcement of a dovish interest-rate hike. The BoJ’s decision to move away from negative interest rates had been communicated well in advance, thus coming as no surprise to the markets, resulting in a weakened Yen.

Meanwhile, the focus of US economic data on Tuesday centered around housing indicators. Both Building Permits and Housing Starts surpassed expectations, setting a positive tone ahead of the upcoming US Federal Reserve (Fed) rate decision on Wednesday. With the Federal Open Market Committee (FOMC) commencing its two-day meeting on Tuesday, any further contraction in the US housing market could potentially bring June back into consideration for the highly anticipated rate cut.

Daily digest market movers: Fed to ease

  • In the Asian session overnight, the Bank of Japan (BoJ) implemented its first interest rate hike in nearly two decades, raising rates from -0.10% to 0%. However, remarks from BoJ Governor Kazuo Ueda indicating the continuation of monetary easing and framing the hike as likely a one-time occurrence led to a weaker Japanese Yen. As a result, both the Greenback and the Chinese Yuan gained ground against the depreciating Yen.
  • In Europe, European Central Bank Vice President Luis De Guindos suggested that the upcoming June meeting will be crucial for the ECB’s rate decision, hinting at the possibility of an initial rate cut at that time.
  • At 12:30 GMT, US Housing data was released, with February’s Housing Starts exceeding estimates at 1.521 million, surpassing January’s figure of 1.374 million. Additionally, Building Permits for February surged to 1.518 million, significantly higher than January’s 1.489 million.
  • The US Treasury is set to auction a 52-week bill in the market at 15:30 GMT.
  • Equity markets responded unfavorably to the dovish hike from the BoJ, with European and US indexes trading in the red after the US opening bell, although the Dow Jones Industrial Average is attempting to recover.
  • According to the CME Group’s FedWatch Tool, expectations for the Federal Reserve to maintain its current stance at the March 20 meeting are at 99%, with only a 1% chance of a rate cut.
  • The yield on the benchmark 10-year US Treasury Note continues its ascent from last week, currently trading around 4.30%.

US Dollar Index Technical Analysis: Fed meeting to be less volatile

The US Dollar Index (DXY) experienced a slight retreat after briefly touching the 104.00 level. With the US Federal Reserve meeting looming, this might not be the optimal position to hold, as investors await any dovish signals from Chairman Jerome Powell. Any indication of a dovish stance could prompt a swift reversal of Tuesday’s gains, potentially pushing the DXY back towards the 103.00 range.

On the upside, the immediate target lies at 104.96, followed by the peak at 104.97 observed in February, with further resistance at the 105.00 level and the first resistance at 105.12.

As the dust settles from the Bank of Japan’s decision and ahead of the Fed meeting on Wednesday, some moderation in the DXY’s momentum is expected. Support levels are anticipated to come into play, notably the 200-day Simple Moving Average (SMA) at 103.70, the 100-day SMA at 103.60, and the 55-day SMA at 103.50. These support levels around the 103.00 area are well-established to cushion any potential pullbacks in the DXY.

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