The Dollar Index (DXY) experienced a slight decline this week, slipping by 40 basis points after enjoying back-to-back weeks of gains, culminating in a one-month high.
This retreat followed weaker-than-expected U.S. economic data, notably a 0.3% month-on-month dip in New Home Sales for February, falling short of the anticipated 3% growth. Consequently, market sentiment tilted towards expectations of a rate cut in June, as evidenced by the CME’s FedWatch tool, which now prices the likelihood of a June cut by the Fed at 74%, up from 64% prior to the new home sales data release.
Attention now turns to the U.S. PCE Price Index, the Federal Reserve’s favoured measure of inflation, which will be closely watched this week. Traders eagerly await this data to gauge whether the anticipation of a June rate cut is justified. Expectations are for the PCE Price Index to gain momentum by ten basis points, rising from 2.4% in January to 2.5% in February. As anticipation builds, market participants brace for potential shifts in sentiment and positioning based on the outcome of this critical inflation gauge.
Technical
The Dollar Index has been following an uptrend, supported by trading above the 100-day moving average and within an ascending channel pattern.
Notably, the lower boundary of the channel established support at the 103.172 level, while upside momentum reached the upper boundary. However, overbought conditions signalled by the RSI led to a downturn at the 104.496 level, forming a resistance level.
Recent downside momentum has seen the Dollar Index breaking below the 23.60% Fibonacci Retracement level, with current movement inching towards the 38.20% level. If selling pressure persists, a breakdown below the 38.20% level on high volume could pave the way for a move towards the 50% level. Conversely, a resurgence of buying interest could lead to a retest of the 104.496 resistance level.
Summary
The Dollar Index faces mixed pressures amid economic data and rate cut expectations. Technical analysis reveals an uptrend but with resistance at 104.496. Further moves hinge on PCE Price Index data and sentiment shifts. Key levels to watch include 103.172 for support and 38.20% Fibonacci retracement for potential downside targets.
Sources: Reuters, CME, Dow Jones Newswires, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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