Weak ISM Services Hits Dollar

The US Dollar is turning sharply lower into the back of the week, ahead of tomorrow’s keenly awaited March labour reports. Yesterday, the ISM services reading was seen unexpectedly dropping to 51.4 from 52.6 prior, below the 52.8 the market was looking for. On the back of the recent uptrend in the index, the fall was a stark blow for USD bulls which served to strengthen the view that rate cuts will be seen in coming months. Indeed, comments from Fed’s Mester the day before pointed clearly to an expected June rate cut.

Powell Needs More Evidence

Following the data, we heard from Fed chairman Powell yesterday too. Powell was seen stressing the need for further evidence that inflation was moving sustainably back to target before the Fed could confidently cut rates. In light of Mester’s comments which also stressed the need for further information, traders are currently pegging June as the expected start-point for Fed easing with pricing currently sitting around 55%.

US Jobs Data Next

Looking ahead this week focus will now turn to the headline NFP data due tomorrow. If tomorrow’s data undershoots forecasts, this should see pricing for a June rate cut jump higher, further weighing on USD into next week. On the other hand, any fresh strength will muddy the water and see June rate-cut expectations weakening.

Technical Views

DXY

Dollar remains range-bound for now following the failure at 104.95. Price is now retesting the broken bear trend line and with momentum studies falling, looks likely to see a fresh test of support at 103.48. Bulls will need to defend this area to prevent a deeper test of 102.49. 

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