US Dollar back in the green in choppy trading with markets looking for direction on mixed initial US data for this week

The US Dollar turns flat after Durable Goods release.
Market sentiment becomes unclear with investors awaiting further data in pivotal week.
The US Dollar Index is back to flat and flirts with a leg higher towards 104.00.

The US Dollar (USD) is flat for this trading session just minutes after the US opening bell. The Greenback was able to recover earlier losses with Durable Goods triggering some US Dollar strength. Meanwhile some easing unfolded on the geopolitical front with both German Prime Minister Olaf Scholz and NATO Secretary General Jens Stoltenberg pushing against claims from French President Emmanuel Macron, repeating that no boots will be on the ground in Ukraine, despite harsh talk from Macron earlier that he would like to open the discussion on the topic.

On the economic front all eyes will now be on the sentiment numbers due to be released later this Tuesday's session. Markets already heard Kansas City Federal Reserve Bank President Jeffrey Schmid, who said that the Fed should be patient and not adjust its policy preemptively. Later this Tuesday Michael Barr and Fed’s Vice Chair was supposed to make comments, though his speech did not hold any references on the markets.

Daily digest market movers: Data not moving the needle

Kansas City Fed Jeffrey Schmid already kicked off this Tuesday with early comments, saying that the Fed should wait and not jump the gun on its disinflationary path.
Around 13:30 GMT Durable Goods for January was released:
- Headline Durable Goods Orders went from a revised down -0.3% to -6.1%.
- Orders without Transportation went from -0.1% to -0.3%.
- All previous numbers were revised to the downside.
At 13:55 the weekly Redbook was released, with 3% as the previous number and 2.7% for this week.
Near 14:00 the Housing Price Index for December was released and went from a revised upwards 0.4% to 0.1%.
Fed Vice Chairman Michael Barr did not leave any comments on monetary policy.
Fast forward to 15:00 where the Consumer Confidence for February was released. Previously it was at 114.8 and it fell to 106.7. Additionally, the Richmond Fed Manufacturing Index for february was released at that same time, with -15 printed previously and -5 for February.
Last number for this Tuesday was released at 15:30 with the Dallas Fed Manufacturing Business Index for February, previously in contraction at -27.4 and now came out at -11.3.
Equities are very mixed in their reaction to the above data releases. The Dow Jones is down near 0.5%, while the Nasdaq is up near 0.5% and the S&P500 is caught in the middle.
According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 97.5%, while chances of a rate cut stand at 2.5%.
The benchmark 10-year US Treasury Note trades around 4.29%, and trades higher for the day.

US Dollar Index Technical Analysis: DXY recovers a touch

The US Dollar Index (DXY) has a very difficult European trading session, with losses pushing the DXY below the 200-day Simple Moving Average (SMA) at 103.73. Though the recent data releases were enough for the Greenback to at least pare back earlier losses. This pushes the DXY back above the 200-day SMA for now.

To the upside, the 100-day Simple Moving Average (SMA) near 104.02 is the first level to watch as it is a support that has been turned into a resistance. Should the US Dollar be able to cross 104.60, 105.12 is the next key level to keep an eye on. One step beyond there comes 105.88, the high from November 2023. Ultimately, 107.20 – the high of 2023 – could even come back into scope, but that would be when markets reprice the timing of a Fed rate cut again, possibly delaying it to the last quarter of 2024.

Looking down, the 200-day Simple Moving Average at 103.73 was broken on Thursday and sees more US Dollar bears flock in to trade the break. The 200-day SMA should not let go that easily, so a small retreat back to that level could be more than granted. Ultimately, it will lose its force with the ongoing selling pressure and could fall to 103.16, the 55-day SMA before testing 103.00 as a level.

Dot Plot FAQs

What is the Federal Reserve “Dot Plot”?

The “Dot Plot” is the popular name of the interest-rate projections by the Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed), which implements monetary policy. These are published in the Summary of Economic Projections, a report in which FOMC members also release their individual projections on economic growth, the unemployment rate and inflation for the current year and the next few ones. The document consists of a chart plotting interest-rate projections, with each FOMC member’s forecast represented by a dot. The Fed also adds a table summarizing the range of forecasts and the median for each indicator. This makes it easier for market participants to see how policymakers expect the US economy to perform in the near, medium and long term.

When does the Federal Reserve publish the “Dot Plot”?

The US Federal Reserve publishes the “Dot Plot” once every other meeting, or in four of the eight yearly scheduled meetings. The Summary of Economic Projections report is published along with the monetary policy decision.

Why is the “Dot Plot” important for markets?

The “Dot Plot” gives a comprehensive insight into the expectations from Federal Reserve (Fed) policymakers. As projections reflect each official’s projection for interest rates at the end of each year, it is considered a key forward-looking indicator. By looking at the “Dot Plot” and comparing the data to current interest-rate levels, market participants can see where policymakers expect rates to head to and the overall direction of monetary policy. As projections are released quarterly, the “Dot Plot” is widely used as a guide to figure out the terminal rate and the possible timing of a policy pivot.

How does data in the “Dot Plot” affect the US Dollar?

The most market-moving data in the “Dot Plot” is the projection of the federal funds rate. Any change compared with previous projections is likely to influence the US Dollar (USD) valuation. Generally, if the “Dot Plot” shows that policymakers expect higher interest rates in the near term, this tends to be bullish for USD. Likewise, if projections point to lower rates ahead, the USD is likely to weaken.

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