- After the durable goods release, the US dollar turned sideways.
- Market sentiment remains uncertain as investors await further data in a crucial week.
- The US dollar index is back flat and struggles to rally towards 104.00.
The US dollar (USD) was flat in this trading session just minutes after the US opening bell. Greenback was able to recoup earlier losses as durable goods drove the dollar higher. Meanwhile, some easing unfolded on the geopolitical front, with German Chancellor Olaf Scholz and NATO Secretary-General Jens Stoltenberg opposing French President Emmanuel Macron’s claims that Despite such harsh statements, Ukraine continued to take a noncompliant stance. I would like to start a discussion on this topic.
On the economic front, all eyes will be on sentiment statistics to be released later this Tuesday. Markets have already heard comments from Kansas City Fed President Jeffrey Schmidt that the Fed should be patient and not adjust policy preemptively. Michael Barr and Fed Vice Chairman Michael Barr were scheduled to comment later this week on Tuesday, but his speech did not mention markets at all.
Daily Digest Market Trends: Data Doesn’t Move the Needle
- Jeffrey Schmidt of the Kansas City Fed already issued early comments on Tuesday, saying the Fed should wait and not jump to a disinflationary path.
- At around 13:30 GMT, the durable goods list for January was announced.
- Major durable goods orders fell from a revised -0.3% to -6.1%.
- Orders without transportation decreased from -0.1% to -0.3%.
- All previous figures have been revised downward.
- The Weekly Red Book was released at 1:55 p.m., and the previous figure was 3%, and this week’s figure was 2.7%.
- The housing price index for December was released near 2 p.m., with an upwardly revised 0.4% to 0.1%.
- Fed Vice Chairman Michael Barr did not comment on monetary policy.
- Fast forward to 15:00 and consumer confidence figures for February have been released. Previously it was 114.8, but it has dropped to 106.7. Additionally, the Richmond Fed Manufacturing Business Index for February was released at the same time, and was -15 last time, and -5 for February.
- The last number for this Tuesday was the Dallas Fed Manufacturing Business Index for February released at 3:30 p.m., which was previously down at -27.4 and is now at -11.3.
- The stock market reaction to the above data release has been very mixed. The Dow Jones is down nearly 0.5%, the Nasdaq is up nearly 0.5%, and the S&P 500 is somewhere in the middle.
- According to CME Group’s FedWatch tool, there is a 97.5% expectation that the Fed will pause at its March 20th meeting, with a 2.5% chance of a rate cut.
- The benchmark 10-year U.S. Treasury bond traded higher on the day, trading around 4.29%.
US Dollar Index Technical Analysis: DXY regains touch
The US Dollar Index (DXY) has been extremely difficult to trade in Europe, with losses pushing DXY below its 200-day simple moving average (SMA) of 103.73. However, the recent data release was enough for Greenback to at least reduce its previous losses. This puts DXY above the 200-day SMA for now.
On the upside, the 100-day simple moving average (SMA) near 104.02 is the first level to note as support turned resistance. If the USD is able to break above 104.60, the next important level to watch is 105.12. A step beyond that will reach 105.88, the highest since November 2023. Ultimately, the 2023 high of 107.20 could be back in the picture, but that could mean the market re-prices the timing of a Fed rate cut, possibly making it the highest since November 2023. It will be time. Last quarter of 2024.
On the downside, we see a break below the 200-day simple moving average of 103.73 on Thursday, and we expect more dollar bears to flock to trade that break. Since the 200-day SMA cannot be lowered so easily, it is quite possible that the stock will retreat slightly to that level. Eventually, continued selling pressure could cause it to lose momentum and fall to the 55-day SMA of 103.16 before testing 103.00 as a level.
Frequently asked questions about dot plots
“Dot plot” is the common name for the interest rate forecast by the Federal Open Market Committee (FOMC) of the US Federal Reserve (FRB), which implements monetary policy. These are published in the Summary of Economic Forecasts, a report in which FOMC members also publish separate forecasts for economic growth, unemployment, and inflation for this year and the coming years. The document consists of a graph plotting interest rate forecasts, with each FOMC member’s forecast represented by a dot. The Fed also added a table summarizing the forecast range and median value for each indicator. This helps market participants understand how policymakers expect the U.S. economy to perform in the short, medium, and long term.
The U.S. Federal Reserve publishes a “dot plot” once every two meetings, or four of its eight scheduled meetings per year. A summary economic forecast report is released along with monetary policy decisions.
The “dot plot” provides comprehensive insight into expectations from Federal Reserve policymakers. Forecasts are considered important forward-looking indicators because they reflect each official’s year-end interest rate expectations. By looking at the “dot plot” and comparing the data to current interest rate levels, market participants can learn where policymakers expect interest rates to go and the overall direction of monetary policy. I can. Because forecasts are released quarterly, the “dot plot” is widely used as a guide to understanding final interest rates and the likely timing of policy changes.
The most market-moving data on the Dot Plot is the prediction of the federal funds rate. Any changes compared to previous forecasts can affect the valuation of the US dollar (USD). Generally, if the “dot plot” shows that policymakers are expecting interest rates to rise in the short term, this tends to be bullish for the USD. Similarly, if future interest rates are expected to decline, the U.S. dollar is likely to depreciate.
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