US Dollar (DXY) Index News: Mixed Trade Following Dovish Durable Goods Data

U.S. Dollar Index Mixed

The U.S. Dollar Index, a key barometer of the dollar’s value against a basket of major currencies, faced downward pressure on Tuesday before posting a small rebound.  The decline comes in the wake of a significant drop in U.S. durable goods orders, which has stirred expectations of an earlier-than-anticipated rate hike by the Federal Reserve, impacting Treasury yields and investor sentiment.

Technically, traders appear to be using the 200-day moving average at 103.732 as a pivot.

At 15:04 GMT, the U.S. Dollar Index is trading 103.840, up 0.059 or +0.06%. The low of the session is 103.609.

Economic Data Weighs on Dollar

The Commerce Department’s report revealed a sharper-than-expected decline in durable goods orders for January, especially in the transportation sector. This 6.1% monthly plunge, surpassing Dow Jones’ estimate of a 5% drop, raises concerns about the robustness of economic growth. The notable 16.2% fall in transportation orders was a major contributor to this downturn.

Fed Rate Hike Expectations Adjusted

Investors are now recalibrating their expectations for the Federal Reserve’s interest rate policy. The anticipation of a rate hike, initially expected as early as March, has been pushed to June. This adjustment follows recent comments from Fed officials and the release of economic data, with a particular focus on inflation trends and their alignment with the Fed’s 2% target.

Global Currencies React

Globally, currency markets are reacting. The Japanese yen saw a modest rise following inflation data exceeding the Bank of Japan’s target. Meanwhile, the euro gained against the dollar, buoyed by adjusted expectations of European Central Bank rate cuts and positive economic indicators, suggesting stronger growth in the latter half of 2024.

Short-term Forecast: U.S. Dollar Index

Looking ahead, the U.S. Dollar Index is poised for volatility. Key upcoming data, including the personal consumption expenditures price index and Fed Chair Jerome Powell’s Senate testimony, will be critical. If inflation figures remain high, it could signal a more aggressive Fed approach, potentially bolstering the dollar. However, any indications of easing inflation may prolong expectations of rate hikes, maintaining pressure on the dollar.

In the short term, the U.S. Dollar Index is likely to remain sensitive to these economic indicators and central bank cues, leaning towards a bearish stance in light of the recent data and market sentiment. The focus remains squarely on the Fed’s inflation management strategy and its implications for future rate adjustments.

Technical Analysis

The US Dollar Index (DXY) is inching higher on Tuesday after shrugging off potentially bearish economic news. Technically, the market is straddling the 200-day moving average at 103.733. Trader reaction to this moving average will determine the direction today.

On the weakside, a sustained move under 103.733 could trigger the start of a near-term break into the 50-day moving average at 103.176.

On the upside, if crossing to the strong side of the 200-day moving average creates enough upside momentum, we could see a test of 104.205 later today.