- The DXY Index is trading neutrally around the 103.80 level with minor day-to-day changes.
- Durable Goods and Confidence data from the US came in weaker than expected.
- The Federal Reserve maintains a hawkish stance as reflected in its reluctance to slash rates, which may limit the downside.
The US Dollar Index (DXY) is presently trading in a neutral zone around the 103.80 level. The Federal Reserve (Fed) has expressed caution about hastily reducing rates, leading to a decreased likelihood of such cuts in March, with the odds in May dropping to around 20%. The Greenback is facing downward pressure due to weak mid-tier data reported during the European session.
If the US economy continues to exhibit signs of weakness, market expectations might undergo adjustments. However, for the time being, the prevailing scenario suggests that the Fed is more likely to initiate rate cuts in June, lending support to the USD. The trajectory of this support could potentially shift based on forthcoming data, particularly the Personal Consumption Expenditures (PCE) figures from January and Gross Domestic Product (GDP) revisions for Q4.
Daily digest market movers: US Dollar offers weak profile as US economy starts showing some cracks
The Consumer Confidence Index by The Conference Board disappointed in February, registering a lower-than-expected 106.7, compared to the anticipated 115. Simultaneously, US Durable Goods Orders took a substantial hit in January, plummeting by 6.1%, well beyond the predicted 4.5% decline.
Market sentiment, as reflected in the CME FedWatch Tool, has shifted due to the Federal Reserve’s cautious stance on premature rate cuts. Odds of a reduction in March have dwindled to zero, with May’s likelihood reduced to 20%. The prevailing consensus leans toward a more probable scenario of easing beginning in June.
However, the landscape could alter if PCE and GDP data reveal softer-than-expected figures, potentially leading to a shift in favor of dovish rhetoric that may exert downward pressure on the US Dollar.
Technical analysis: DXY bears hold steady below 20-day SMA
Analyzing the daily chart, signs of diminishing buying momentum become apparent. The Relative Strength Index (RSI) hovers cautiously in negative territory, hinting at the potential emergence of selling pressure. This sentiment is reinforced by the presence of ascending red bars in the Moving Average Convergence Divergence (MACD), signaling a downward momentum.
Examining the Simple Moving Averages (SMAs) adds complexity to the overall picture. The DXY remains positioned below both the 20 and 100-day SMAs, suggesting a potential bearish tilt in the short term. However, the fact that it stays above the 200-day SMA hints at underlying bullish strength.
While indications of bears gaining ground could intensify selling pressure in the short term, it’s essential to note that the broader trend still reflects a degree of bullish resilience in the DXY.
