- The US Dollar trades in the green across the board.
- Market sentiment turns into risk-off, with equities in the red in Asia, Europe and US.
- The US Dollar Index recovers above 104.00, posting a fresh five-day high.
Following the second reading of the US Gross Domestic Product (GDP), the US Dollar (USD) has stepped back from its intraday peak. While the Headline GDP figure was only marginally softer than anticipated by 0.1%, concerns have arisen regarding the Personal Consumption Index. Despite expectations aligned with the recent robust Consumer Price Index report from two weeks ago, the actual increase surpassed predictions, prompting apprehension among traders about the next course of action. All eyes are now on the US Federal Reserve to discern whether they will opt for another rate hike, given their data-dependent stance, potentially setting the stage for a turbulent journey toward the eagerly anticipated first rate cut later this year.
With economic data now behind us, market attention turns to the three US Federal Reserve members scheduled to speak. The mixed signals from the second reading on US GDP and PCE suggest that market participants will closely scrutinize every word from the Fed officials to grasp the current situation. The question at hand is whether this is a singular occurrence or the onset of a second-round effect, necessitating further tightening to maintain control and sustain the disinflationary momentum.
Daily digest market movers: What now Powell?
Ahead of the US session, there were notable comments from the European Central Bank (ECB), voiced by ECB’s Peter Kazimir. He expressed concerns that disinflation is unfolding at a faster pace than anticipated, emphasizing that there’s no urgency for a rate cut, with June being the ECB’s best estimate for such a move.
The Mortgage Bankers Association (MBA) released this week’s Mortgage Applications Index, indicating a consecutive decline. Following last week’s 10.6% drop, there was another 5.6% decrease this week.
Scheduled for release at 13:30 GMT, the second reading of the US Gross Domestic Product (GDP) for the fourth quarter has been unveiled:
- The Headline GDP softened slightly to 3.2% from the initial reading of 3.3%.
- The Core Personal Consumption Expenditures rose to 2.1% from the previous 2.0%.
- The quarterly Personal Consumption Expenditures Price Index also increased, moving up from 1.7% to 1.8%.
Between 17:00 and 17:45 GMT, three US Federal Reserve officials are set to address the audience:
- Atlanta Fed President Raphael Bostic will speak at 17:00 GMT.
- Boston Fed President Susan Collins will follow around 17:15 GMT.
- New York Fed President John Williams will take the stage at 17:45 GMT.
Equities are experiencing a slight easing in both Europe and the US, with the German Dax even showing a modest gain. US equity futures remain in the red ahead of the opening bell.
As per the CME Group’s FedWatch Tool, the market’s expectations strongly favor a Fed pause in the March 20 meeting, with a probability of 99.5%, while the likelihood of a rate cut stands at 0.5%.
The benchmark 10-year US Treasury Note is trading around 4.29%, not far from this week’s peak at 4.32%.
US Dollar Index Technical Analysis: Bumpy road ahead
The US Dollar Index (DXY) may have enjoyed a temporary victory by squeezing out some US Dollar bears, but the path to a substantial recovery appears challenging and uncertain following the second reading of US GDP and its sub-components. Despite the Federal Reserve and Chairman Jerome Powell emphasizing their data-dependent stance for months, emerging data signals a potential need for another interest rate hike. This outcome is not aligned with market expectations, setting the stage for a dampening of market sentiment, with the Fed holding the reins on how severe or mild the disappointment will be.
On the upside, the 100-day Simple Moving Average (SMA) around 104.00 is currently being tested after its resistance was breached, although caution is warranted as it might evolve into a bull trap. If the US Dollar surpasses 104.60, the next significant level to monitor is 105.12. Beyond that, attention turns to 105.88, marking the high from November 2023. Ultimately, the ambitious target of 107.20, the high of 2023, could come into focus, but this might occur when markets recalibrate the timing of a potential Fed rate cut, potentially pushing it to the last quarter of 2024.
On the downside, the 200-day Simple Moving Average at 103.74, having been breached twice recently, stands as a fragile support. Although a minor retreat to this level could be expected, sustained selling pressure might weaken its influence, potentially leading to a decline to 103.16, the 55-day SMA, before testing the 103.00 level.
