Home » US Dollar gives up weekly gains in ISM, Michigan aftermath

US Dollar gives up weekly gains in ISM, Michigan aftermath

by FX BrokerNews
  • The US Dollar trades near flat for this week and sees Friday’s gains abate after last US data points.
  • Markets are seeing this week being a standstill for the Greenback. 
  • The US Dollar Index orbits around 104.00, unable to break away in either way.

The US Dollar (USD) is relinquishing its gains for both Friday and the entire week, following the release of data from the Institute for Supply Management (ISM) and the University of Michigan. The conflicting signals between the Global Purchase Managers Index and the ISM are prompting traders to heed recent statements from US Federal Reserve officials, cautioning against placing excessive weight on recent inflation readings. This suggests that the Fed remains confident in the continuity of a disinflationary trend and is not currently contemplating a rate hike.

Looking ahead, with all economic data points for the week now behind us, attention turns to the next week. The spotlight will be on the monthly US Jobs Report, alongside the European Central Bank’s monetary policy decision. Additionally, Fed speakers are expected to provide further insights into the market as we approach the end of the week.

Daily digest market movers: Fed speakers easing this weeks data releases

The Friday session commenced with the release of the final reading for the S&P Global Manufacturing PMI for February. Expectations were for a stable reading at 51.5; however, the actual number exceeded projections, coming in higher at 52.2.

Subsequently, at 15:00 GMT, both the University of Michigan and the Institute for Supply Management (ISM) data were unveiled. The final February Consumer Sentiment from the University of Michigan slipped from 79.6 to 76.9, while inflation expectations held steady at 2.9%. On the ISM side, the Manufacturing PMI declined from 49.1 to 47.8, with the Manufacturing Employment subcomponent contracting further from 47.1 to 45.9. The New Orders Index declined from 52.5 to 49.2, and the Prices Paid Index followed suit, sliding from 52.9 to 52.5.

In the realm of the Federal Reserve’s schedule for the day, Richmond Fed Governor Tom Barkin suggested that a rate hike is not imperative amidst contractions in some sectors. He emphasized that while the Fed should not be in a rush to cut rates, no cuts are anticipated for this year. Additionally, Fed Board of Governors member Christopher Waller and Dallas Fed President Lorie Logan expressed their views during a panel discussion, envisioning a gradual shift towards a more restrictive stance and a slower balance sheet runoff.

Further insights from Raphael Bostic of the Atlanta Fed, San Francisco Fed President Mary Daly, Federal Reserve Bank of Kansas City President Jeffrey Schmid, and Fed Board of Governors member Adriana Kugler are expected throughout the day.

At 16:00 GMT, the Fed will release its Monetary Policy Report, set to be presented to Congress ahead of the semi-annual hearings next week. Equities are responding with a downturn following the Global Manufacturing print, reinforcing the case for a prolonged steady rate stance from the Fed.

According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 97%, with only a 3% chance of a rate cut. The benchmark 10-year US Treasury Note is trading around 4.20%, marking the lower end for this week.

US Dollar Index Technical Analysis: Rate hikes out of the cards for now

The US Dollar Index (DXY) appears set to conclude the week with modest gains, showcasing limited movement. The conflicting signals emanating from various Fed speakers discussing potential rate cuts and the nuanced inflation data, suggesting the possibility of another rate hike, have fostered a sense of uncertainty, resulting in a relatively stagnant US Dollar. Traders seem to be exercising caution, awaiting next week’s developments, notably the release of the US Jobs Report and Federal Reserve Chairman Jerome Powell’s congressional testimony.

On the positive front, the maintenance of the breach beyond the 100-day Simple Moving Average (SMA) at approximately 103.97 appears steady, with no indications of an imminent retest in the latter part of the Friday session. Should the US Dollar successfully exceed 104.60, the focus will shift to the subsequent critical level at 105.12. Beyond that juncture, attention turns to the high from November 2023 at 105.88, with the ultimate target set at 107.20 – the peak of 2023.

Conversely, the recently penetrated 200-day Simple Moving Average at 103.74 is perceived as a somewhat fragile support, having been tested on two occasions in the recent past. Nevertheless, the 200-day SMA is anticipated to provide some resilience, making a modest retracement to that level plausible. In the event of a breakdown, a decline to 103.16, marked by the 55-day SMA, may precede a test of the 103.00 level.

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