US Dollar Sees Minor Gains As Markets Gear Up For The Fed's Decision Next Week

The US Dollar Index (DXY) is registering slight gains at the level of 103.40 on Friday, rebounding from December lows amid rising US Treasury yields. This follows the release of hot inflation data this week. The resilience of strong economic indicators and a cautious stance from the Federal Reserve (Fed) against hasty easing offer potential for US Dollar recovery. Next week, all eyes will be on the updated Federal Open Market Committee (FOMC) forecast, which could give additional traction to the USD.
Despite persistent inflation in the US, incoming data will continue to dictate the timing of the easing cycle, expected in June. Investors overlook hot inflation rates as mixed labor market data seems to have overshadowed it. Next week’s FOMC Dot Plot might also recalibrate the market’s expectations.

Daily digest market movers: US Dollar to close the week with mild gains after mid-tier data

  • The University of Michigan reported the March Consumer Expectations index at 74.6, down from the previous figure of 75.2.
  • The Consumer Sentiment index for March was reported at 76.5, slightly down from 76.9 in the previous period.
  • The 5-Year Inflation Expectations remained steady at 2.9%.
  • On the positive side, the Industrial Production (MoM) for February came in at 0.1%, which was an improvement from the previous report of -0.5%.
  • US Treasury yields rise with the 2-year yield at 4.71%, the 5-year at 4.13%, and the 10-year at 4.29%.
  • The market anticipates no rate cuts from the Federal Reserve in the coming week, with eyes on whether the Fed can ensure a smooth landing. Projections for a cut in May stand at 10%, while the likelihood of a June cut is around 65%. 
  • The market will focus on whether officials still envision three cuts in 2024.

DXY technical analysis: DXY sees a bearish undertone despite the recent bullish gains

The daily chart indicators reveal the dominance of selling momentum in DXY's technical landscape. The Relative Strength Index (RSI) prints a positive slope yet remains in negative terrain, suggesting that bears still hold the reins but with buyers building momentum. On the other hand, the Moving Average Convergence Divergence (MACD) histograms are showing decreasing red bars, highlighting decreasing selling pressure.

Adding to the bearish implications, DXY is trading below its 20, 100, and 200-day Simple Moving Averages (SMAs), pointing to a strong downtrend. This consolidation beneath the SMAs may suggest a short-term bearish outlook, offsetting any bullish attempt. Although bulls are gradually gaining ground, the prevailing selling momentum communicates strong downward pressure. Until the RSI climbs into bullish territory and MACD bars switch to the green zone, the bearish perspective will remain intact.

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