Key Points

1. Fed’s upcoming decision fuels market speculation on rate cuts. 
2. U.S. housing market resilient, with varied regional performances.
3. Dollar Index rises slightly, awaiting key Non-Farm Payrolls report.

U.S. Dollar Index and Housing Market

The U.S. Dollar Index (DXY) is showing a slight increase on Tuesday, edging up by 0.05% to 103.52. This movement comes as market participants anticipate the release of significant economic data, including the non-farm payrolls report due on Friday. The focus is also on the Federal Reserve’s two-day meeting starting Tuesday, with expectations that interest rates will remain unchanged.

Fed Meeting and Rate Cut Speculations

Investors are keenly awaiting Federal Reserve Chair Jerome Powell’s press conference on Wednesday for insights into the central bank’s future rate decisions. After Powell’s previous dovish remarks, the market is looking for more clarity on the timing of potential rate cuts. Currently, there’s only a 3% chance predicted for a rate cut in March, a significant drop from 73.4% a month ago.

U.S. Jobs Data and Economic Resilience

The week is packed with U.S. domestic jobs data, including the January U.S. payrolls report on Friday. These figures are crucial for assessing the health of the U.S. economy. The recent job opening data (JOLTS) from Tuesday, showing a rise to 9.03 million, indicates a robust labor market, underpinning strong economic growth.

Housing Market Trends

In the housing sector, the S&P CoreLogic Case-Shiller national home price index noted a 0.2% decline in November from October, marking the first monthly drop since January 2023. High mortgage rates, peaking at nearly 8%, have impacted affordability. Despite this, annual home price gains rose to 5.1% in November, indicating a resilient market.

The report highlighted varying performances across regions, with cities like Miami and Tampa reaching new highs, while Portland, Oregon, saw a year-over-year price decline. Detroit led with the highest annual price increase among the 20 cities surveyed.

Short-term Market Forecast

Looking ahead, the U.S. Dollar Index may continue to experience cautious trading as market participants digest the upcoming economic data and Federal Reserve insights. The housing market, despite recent drops, shows signs of underlying strength, particularly in specific regional markets. The overall resilience of the U.S. economy, as evidenced by the robust job market, suggests a cautiously optimistic outlook for the short term.

Technical Analysis

The U.S. Dollar Index is higher on Tuesday, while straddling the key resistance cluster formed by the 200-day moving average at 103.518 and a pivot at 103.572. Trader reaction to this area is likely to determine the near-term direction for the index.

Look for a bullish tone to develop on a sustained move over 103.572. The daily chart indicates there is room to run until 105.628. Conversely, a failure to hold 103.518 will signal the return of sellers. If this creates enough downside momentum then look for a near-term pullback into the 50-day moving average at 102.831.