DXY Index Finds Support in Asia as Rate Cut Expectations Dial Back

Key Takeaways

• Global Markets Rally as Inflation Worries Ease and Banking Fears Abate
• Dollar Finds Support in Asia as Investors Dial Back Rate Cut Expectations
• Steady Stock Markets and Calm Bonds Signal Reduction in Banking Contagion Fears

Overview

The US dollar received support in Asia on Wednesday as investors reduced expectations of US rate cuts after the fear of a banking crisis eased, and inflation data remained high.

The dollar’s selling of the past two sessions slowed down, and it rose by about 0.2% against both the Euro and Japanese Yen to 132.52 yen and $1.0729 against the euro.

At 06:02 GMT, June US Dollar Index futures are trading 103.280, up 0.065 or +0.06%. On Tuesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $28.10, up $0.01 or +0.02%.

Treasury Yields Rebounding

Overnight, banking stocks bounced back, and bonds and interest rate futures gave back some of the gains they had logged following the collapse of three US banks in a matter of days.

While rallies in sterling, the Australian dollar, and the New Zealand dollar also seemed to lose steam, they didn’t give back any ground.

Westpac strategist Imre Speizer suggested that “we’ll end up with a dollar not being quite as strong,” and with a lower Fed peak than was priced a week ago.

Traders Locking in 25-Basis Point Rate Hike

Interest rate futures pricing now implies an 80% chance of a 25 basis point US rate hike next week, which is more dovish than the previous week’s pricing of a similar chance of a 50 bp hike but more hawkish than a day ago when traders priced a 50% chance of a hold and steep cuts later in the year.

However, US consumer prices increased solidly in February, keeping the pressure on the Federal Reserve to contain price rises.

Risk Sentiment Improving but Risks Still Exist

Steadier stock markets, relative calm in bonds, and the moves suggest the immediate fears of contagion in the US banking system have reduced following the failure of Silicon Valley Bank last week.

Nonetheless, the safe-haven Swiss franc’s strong performance this week, up more than 3% in five days, shows the elevated levels of concern in markets.

Looking ahead to Wednesday, traders will get the opportunity to react to fresh data on U.S. producer prices and retail sales.

Daily June US Dollar Technical Analysis

The main trend is down according to the daily swing chart. The next downside target is the main bottom at 102.090. A trade through 105.490 will change the main trend to up.

The main range is 106.917 to 100.345. The index is trading on the weak side of its retracement zone at 103.631 to 104.406, making it resistance.

The short-term range is 100.345 to 105.490. Its retracement zone at 102.918 to 102.310 is another downside target and potential support.

Daily June US Dollar Technical Forecast

Trader reaction to the short-term 50% level at 102.918 is likely to determine the direction of the June U.S. Dollar Index on Wednesday.

Bullish Scenario

A sustained move over 102.918 will indicate the presence of buyers. If this creates enough upside momentum then look for an intraday surge into the main 50% level at 103.631. Overcoming this level will indicate the counter-trend buying is getting stronger.

Bearish Scenario

A sustained move under 102.918 will signal the presence of sellers. This could trigger an acceleration into a support cluster at 102.310 – 102.090.