USDIndex pared last week’s losses, on Friday edging up +0.50%, due to stronger-than-expected US economic figures. New orders for February non-defense aircraft capital goods unexpectedly increased +0.2% m/m, stronger than the expected -0.2% m/m decline. Moreover, March S&P manufacturing PMI unexpectedly rose +2.0 to a 5-month high of 49.3, stronger than expectations for a cut to 47.0.
St. Louis Fed’s Bullard lent support to the dollar, when he said financial stability issues could be addressed through additional steps to ease bank strain. Bullard also said he was raising his forecast for this year’s peak interest rate to 5.62% from 5.37% in reaction to stronger economic data.
The topic of inflation will return to attention this week, amid concerns over the impact of the banking industry. PCE inflation stats from the US and quick CPI readings for the euro area will dominate the headlines. Inflation data will also be available for Australia, while prices in Tokyo will be monitored. A hot CPI number could roil markets, as central banks have indicated that they will not be turning their heads during these turbulent times.Markets will be studying additional inflation data, after the FOMC meeting and the financial crisis in mid-March. On Friday, the PCE inflation report and personal income & spending data will be released. Although overall price pressures have eased significantly in recent months, the Fed is currently concentrating on services inflation and Chair Jerome Powell’s latest assessment is that there has been no progress while excluding the housing component.With market sentiment still fragile following the bank collapse, investors are more likely to react negatively to the strong data as it will give the Fed less reason to be cautious. However, this has not necessarily lifted the US dollar as the Fed’s terminal rates have shifted permanently lower.
Technical Review
USDIndex has declined -2.1% through March, so the rebound from 100.65 in February could be tested again. Last week the USDIndex price recorded a new 7 week low at 101.53, before closing higher at 102.74 and holds that zone today, ahead of the US Open. The index is seen still under pressure by moving below the 26-day exponential moving average (blue line), RSI is in contraction at 43 and AO in the sell zone. A move below 101.53 could test 100.65 with continued attention on the 100.00 round number price level.
USDINDEX, Daily
While on the positive side, a barrier is seen at 104.70, before 105.85. A move above 105.85 will tell us that the correction from the top of 114.71 has finished at 100.65 .
