US Dollar (DXY): Capped by Higher Euro as Anticipation Builds for Fed Speakers

Highlights

• US dollar weakens against Euro; sterling declines ahead of key events.
• Mixed performance of US Treasury yields amid investors’ focus on Fed Member Speeches
• Positive housing start data surpasses expectations, raising optimism.

Overview

The US dollar index, which measures the currency against a basket of six others, experienced a decline on Tuesday. This decrease can be attributed to the Euro’s rise, which was supported by the European Central Bank’s hawkish stance. Two policymakers from the ECB stated that the bank should consider further rate increases due to the possibility of higher-than-expected inflation rates.

Sterling Falls Ahead of Key Events

Sterling is facing a decline against the US dollar as investors await the release of British inflation data on Wednesday and the Bank of England’s interest rate decision on Thursday. Market expectations suggest that the BoE will implement a quarter-point rate increase, with additional tightening of approximately 125 basis points anticipated for the remainder of the cycle. Until the BoE is confident that inflation is receding, they may not counter market expectations for interest rate hikes. This cautious approach may result in sterling maintaining its recent gains.

Mixed Performance of US Treasury Yields

US Treasury yields exhibited a mixed performance on Tuesday as investors closely monitored statements from Federal Reserve officials for insights into future monetary policy moves. The remarks from these officials are expected to shed light on the outlook for interest rates.

Positive US Housing Start Data

In May, US housing starts surpassed economists’ expectations, reaching 1.63 million starts, as reported by the Census Bureau on Tuesday. This figure exceeded the forecasted 1.39 million housing starts. Additionally, new building permits in May totaled 1.49 million, higher than the predicted 1.42 million building permits.

Upcoming Fed Speeches to Provide Clarity

Investors are eagerly anticipating a series of speeches by Federal Reserve officials scheduled for this week. These speeches may offer fresh insights into the future of interest rates. During the previous monetary policy meeting, the central bank decided to maintain rates unchanged for the first time since March 2022. However, the guidance provided alongside the rate decision indicated that the Fed plans to raise rates twice more this year, with increments of 25 basis points each time. Furthermore, the Fed expects interest rates to be higher than previously anticipated throughout 2024 and 2025.

Key Figures to Speak

St. Louis Fed President Jim Bullard and New York President John Williams are scheduled to deliver speeches on Tuesday, followed by other policymakers throughout the week. Fed Chairman Jerome Powell will testify before Congress on Wednesday and Thursday, providing additional insights into the central bank’s stance.

Overall, the US dollar index weakened due to the Euro’s strength, while sterling faced downward pressure ahead of crucial events. US Treasury yields showed a mixed performance, and positive US housing start data exceeded expectations. Investors are now eagerly anticipating speeches by Federal Reserve officials, including Chairman Jerome Powell, to gain further clarity on the future of interest rates.

Technical Analysis

The current 4-hour price for the US Dollar Index is 102.443, slightly lower than the previous 4-hour close of 102.451. This indicates a slightly negative sentiment as the price has decreased marginally during the most recent trading period.

The current 4-hour price is below the 200-4H moving average, which is at 103.138. This suggests a bearish sentiment in the market, indicating that the price is trading below its long-term average and potentially facing downward pressure.

Similarly, the current 4-hour price is also below the 50-4H moving average, which stands at 102.955. This further reinforces the bearish sentiment, as the price is trading below both short-term and long-term moving averages.

The 14-4H RSI is at 42.51, which indicates a neutral sentiment in the market. It suggests that the US Dollar Index is neither overbought nor oversold at the moment, implying a balanced state between buyers and sellers.

Regarding support and resistance levels, the major support area is at 102.006, while the major resistance area is at 103.375. Considering the current price of 102.443, it is trading above the major support area but below the minor resistance area of 102.626. This suggests a mixed sentiment, as the price is currently sandwiched between support and resistance levels.

Based on the analysis, the market sentiment for the US Dollar Index (DXY) appears to be slightly bearish. The price is trading below both the 200-4H and 50-4H moving averages, indicating a potential downward trend. However, the neutral RSI reading suggests a lack of strong momentum. It is important to monitor the price movement relative to the support and resistance levels to assess the market’s future direction accurately.