The start of the new trading week saw a challenging period for the US dollar as it experienced weakness across various currency pairs. The recent FOMC minutes didn’t bring much excitement to the market after the recent inflation print, resulting in a rather subdued reaction. The data in particular led to a broad sell-off in the US Dollar. Notably, USD/JPY emerged as a primary contributor to the dollar’s decline, despite relatively stable Treasury yields and a cautiously optimistic overall market sentiment.
Key Points Post FOMC Minutes:
1. DXY’s Potential Recovery: The DXY eyes recovery after a bounce off a key support area. Is more upside ahead?
2. EURUSD’s Retracement: EURUSD flirts with 1.0900 as a long-awaited retracement might be underway.
3. Fed’s Position: The Fed maintains a data-based decision-making approach, considering further policy tightening if inflation progress remains insufficient.
4. Rate Expectations: Fed rate expectations barely changed post the Fed minutes. The first rate cut is likely in May 2024, fully priced in for June 2024, according to the FedWatch tool.
5. Upcoming Data: Tomorrow marks the last day of high-impact US data with Durable Goods Orders and Michigan Sentiment Final print expected, likely to have minimal impact on the US Dollar.
US Economic Insights:
The US economy has shown positive signs for the Fed, with signs of cooling inflation and a changing labor market. However, factors like the resumption of student loan repayments may affect consumer spending and demand, impacting retail sales and prices.
Market Reaction:
Following the data release, the dollar index remained relatively unchanged, facing resistance around the 200-day MA, potentially influencing tomorrow’s movement. EURUSD initiated a selloff post-DXY’s recovery, dipping below 1.0900, with attention on the sustainability of this move.
Immediate Outlook:
EURUSD’s potential upward movement faces resistance around 1.0950 and today’s daily high. A breakthrough could drive EURUSD toward the psychological level of 1.1000.
Market Highlights:
- Currency Movements:
- USD/JPY faced downward pressure, recovering from 148.70 in Asia to 149.00 before dropping to 148.10 during European morning trade.
- EUR/USD and GBP/USD displayed more reserved movements, with EUR/USD edging up by 0.2% to 1.0930, and GBP/USD increasing by 0.1% to 1.2470, having touched an earlier high of 1.2510.
- Antipodeans (AUD/USD and NZD/USD) benefited from strong gains during Asia trading, with AUD/USD rising by 0.7% to 0.6555 and NZD/USD up 0.6% to 0.6022.
- Market Indices and Yields:
- European equities showed a mixed performance, while S&P 500 futures remained flat.
- US 10-year yields experienced an increase of 3.9 basis points, reaching 4.480%.
- Commodities and Cryptocurrencies:
- Gold witnessed a slight decline of 0.4%, closing at $1,972.10.
- WTI crude oil recorded a 1.5% increase, reaching $77.05.
- Bitcoin demonstrated a 2.0% rise, reaching $37,160.
Conclusion:
Despite the challenging start for the US dollar, marked by weakness against the Japanese yen, the overall market sentiment remained tentative. The dollar’s performance could see further developments during US trading, and market participants will closely monitor broader market follow-throughs. As of now, the dollar continues to exhibit weakness, indicating a potential continuation of its technical breakdown in the near term.
