- The Greenback is poised to maintain its 0.7% weekly increase.
- The sentiment data from the University of Michigan could have been more vital.
- Fortunately, the data for Industrial Production exceeded expectations.
- Attention will now shift to the upcoming FOMC meeting scheduled for next week.
The US Dollar Index (DXY) is experiencing modest gains at the level of 103.40 on Friday, recovering from December lows due to the increase in US Treasury yields. This comes after the publication of significant inflation figures earlier this week.
The robustness of solid economic indicators and a prudent approach from the Federal Reserve (Fed) to avoid hasty easing present an opportunity for the US dollar to bounce back. In the upcoming week, a lot of Attention will be paid to the revised forecast from the Federal Open Market Committee (FOMC), which has the potential to strengthen the USD further.
In light of the ongoing inflationary pressures in the United States, the timing of the easing cycle, which is expected to take place in June, will be determined by the data that is received.
Investors appear to be more focused on the contradictory data from the labor market, and as a result, they are ignoring the rising rates of inflation. As the FOMC Dot Plot is scheduled to take place the following week, there is a possibility that the market’s expectations will be reevaluated.
The US Dollar Will End the Week With Small Gains After Average Data
- The March Consumer Expectations index at the University of Michigan has been reported as 74.6, showing a slight decrease from the previous figure of 75.2.
- The March Consumer Sentiment index was 76.5, a slight decrease from the previous period’s reading of 76.9.
- The 5-year Inflation Expectations remained unchanged at 2.9%.
- Looking at the bright side, the Industrial Production (MoM) for February showed a 0.1% increase, marking an improvement compared to the previous report’s -0.5%.
- The yields on US Treasury bonds have increased, with the 2-year yield at 4.71%, the 5-year yield at 4.13%, and the 10-year yield at 4.29%.
- The market expects no interest rate reductions from the Federal Reserve in the upcoming week, with Attention focused on whether the Fed can successfully achieve a seamless transition. Estimates indicate a potential reduction of 10% in May, with a higher probability of a cut in June at approximately 65%.
- The market will be closely watching to see if officials maintain their outlook for three rate reductions in 2024.
Despite the Recent Bullish Gains, DXY Is Observing a Bearish Undertone in the Market
The daily chart indicators indicate a strong selling momentum in DXY’s technical landscape. The Relative Strength Index (RSI) shows a positive slope despite being in negative territory, indicating that bears are still in control, but buyers are gaining momentum.
However, the histograms of the Moving Average Convergence Divergence (MACD) are displaying a decline in red bars, indicating a decrease in selling pressure.
In addition to the bearish signals, DXY is currently trading below its 20, 100, and 200-day Simple Moving Averages (SMAs), indicating a significant downward trend. The consolidation below the SMAs could indicate a more negative short-term perspective, counteracting any potential bullish efforts.
Despite the bulls making some progress, the current selling momentum indicates significant downward pressure. The bearish perspective will continue to hold until the RSI enters bullish territory and the MACD bars transition to the green zone.