- US Housing Starts and Building Permits from February beat expectations.
- All eyes are now on the Fed’s updated Dot Plot on Wednesday, an interest rate pause is already priced in.
- US Treasuries are edging downward but remain at multi-week highs.
The US Dollar Index (DXY) is fluctuating around 104.00, registering gains ahead of the impending Federal Open Market Committee (FOMC) meeting on Wednesday. This marks the highest level since March 1. Markets await fresh guidance, and if the Federal Reserve’s (Fed) updated Dot Plot or Chair Jerome Powell provides any dovish signals, the USD may resume its downside action.
In the meantime, Fed officials remain cautious about rushing too soon to start cutting as inflation remains sticky, which seems to also provide a cushion to the USD. The fresh guidance from Wednesday and incoming data will continue dictating the pace of the Greenback for the short term.
Daily digest market movers: DXY extends gains on strong housing data ahead of Fed decision
- Housing Starts in February reported by the US Census Bureau demonstrated a 10.7% MoM increase, rebounding from a -12.3% reading in the previous report.
- Building Permits (Feb) came in at 1.521M, higher than the 1.425M expected.
- The market currently anticipates the Fed remaining on its hawkish path, factoring in a 10% likelihood of a rate cut in May and a 65% chance in June. However, those odds may change after Wednesday’s FOMC decision.
- The 2-year yield is currently trading at 4.70%, while the 5-year yield stands at 4.31% and the 10-year yield at 4.30%.
DXY technical analysis: DXY sees bullish momentum dominate market
The technical indicators on the daily chart reflect a positive bias. The Relative Strength Index (RSI), bearing a positive slope in positive territory, signals an augmenting bullish strength. Simultaneously, the histogram of the Moving Average Convergence Divergence (MACD) is showcasing rising green bars, further affirming the dominance of buying momentum.
The Simple Moving Averages (SMAs) further bolster this bullish outlook. The DXY is now positioned above the convergence of 20,100 and 200-day Simple Moving Averages (SMAs) near the 103.50-70 area, which suggests that bulls are controlling the broader outlook.
Considering these signals, a snapshot of the current technical outlook implies that overall, bulls are gaining ground. However, bulls must build strong support above the mentioned SMAs to consolidate their movements.
Dot Plot FAQs
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.
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.
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.
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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