USDIndex closed March weakening –2.6%, on Friday it closed at 102.23 and for the first quarter of 2023 it recorded a decrease of -1.1%. January weakness led to February strength, but sellers returned in March to erase most of the bullish run. Last weekend’s gains were based on some month-end and quarter-end purchases. Dollar gains remained relatively limited, after the core February PCE deflator rose less than expected, which is dovish for Fed policy. Today, the Index has initially rallied to 102.70 but trades at 102.00 ahead of the US open.
Meanwhile, the Fed hasn’t caved in on a rate hike, markets continue to build hopes for some further softening in banks and the emergence of a banking crisis in early March only pushed the theme of lower interest rates further. However, Boston Fed President Collins remarks were slightly hawkish and supported the Dollar, as she said the Fed still has “more work to do” to bring down inflation and this month’s Fed forecast is a good gauge of what he expects for rates and the economy. he suggested another 25 bp rate hike.
The general question is, is the Fed continuing to moderate their rate hike stance or are they signaling another hike for June?
USDIndex set a low of 100.65 in early February and moved higher and broke the 200 day EMA to peak at 105.85 in early March, before dropping to produce a higher low at 101.53. The index looks to have settled at the 50%FR retracement level of the 2021-2022 draw and remains the headline price, due back in play next week.
A move below 100.65 will confirm, bottom correction of the decline to 114.71 is not finished yet and there is a possibility to test the 100.00 psychological mark and 61.8% retracement at 98.91. Meanwhile, as long as the support at 100.65 holds, movement to the upside could again move towards the 38.2%FR level and possibly test 105.85. A break of the 105.85 level confirms that the corrective wave has finished at 100.65 and the index could return to its positive path, upside price levels such as 107.12, 107.87 and 109.12.
RSI is still in the contraction area of 42, a break of the minor resistance at 102.99 can bring another rebound. MACD is still in the sell area and a move below the minor support 101.53 will bring a test of the major support 100.65.
The US jobs report is widely regarded as the most important economic report of the month, even though inflation may be running close to it right now. The March report is expected to show a slower, though still strong pace of job growth at 240,000, and wages growing at a decent rate. That may not be enough to stop the Fed from tightening another 25 basis points in May, although that is something markets cannot decide at the moment.
The ISM Manufacturing survey on Monday will also be eyed, along with JOLTS job vacancies on Tuesday, ISM Services on Wednesday and Weekly jobless claims & ADP data on Thursday.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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