US Dollar Inches Upwards Despite Mixed Data Reports
Over the past week, the US Dollar Index (DXY) has managed to maintain a 0.7% gain, reaching a level of 103.40 on Friday. This upward movement comes after a period of lows in December and is supported by the increase in US Treasury yields. Strong economic indicators and a cautious approach by the Federal Reserve (Fed) suggest a potential for further recovery for the US Dollar, with all eyes now turning to next week’s Federal Open Market Committee (FOMC) meeting for further insights.
Despite ongoing inflation concerns in the US, the timing of any potential easing cycle is still dependent on incoming data. While inflation rates remain high, mixed labor market data has overshadowed this issue for investors. The upcoming FOMC Dot Plot release is expected to provide more clarity on market expectations and potential policy adjustments.
Market Insights: Analysis and Expectations
- The University of Michigan reported a decrease in the March Consumer Expectations index to 74.6, down from 75.2.
- Consumer Sentiment for March also dipped slightly to 76.5 from 76.9 in the previous period.
- 5-Year Inflation Expectations held steady at 2.9%.
- On a positive note, February’s Industrial Production (MoM) data showed improvement at 0.1%, up from the previous report of -0.5%.
- US Treasury yields have risen, with the 2-year yield at 4.71%, the 5-year at 4.13%, and the 10-year at 4.29%.
- Market expectations do not include rate cuts from the Federal Reserve next week, with focus on ensuring a smooth economic transition. Projections for a rate cut in May are low at 10%, but June shows a higher likelihood at 65%.
- There is also anticipation around whether officials still see three cuts in 2024 as a possibility.
Technical Analysis: DXY’s Bearish Tone Despite Recent Gains
Looking at the technical indicators for DXY, there is a bearish undertone despite recent gains. The Relative Strength Index (RSI) is showing a positive slope but remains in negative territory, indicating a hold on selling pressure. Similarly, the Moving Average Convergence Divergence (MACD) histograms are decreasing, signaling a reduction in selling momentum.
DXY is currently trading below its key moving averages (20, 100, and 200-day SMAs), suggesting a strong downtrend. This setup hints at a short-term bearish outlook and potential resistance to bullish movements. While there is some buying activity, the overall selling pressure remains dominant. For a shift in momentum, the RSI needs to trend upwards into bullish territory, and the MACD bars must transition into positive territory.