US Dollar trades lower following soft housing data

• The DXY Index slips on Monday, trading down to 103.80. 
• Fed's hesitance to cut rates has stirred the market and may limit DXY losses.
• New Home Sales data for January was lower than expected at 0.66 million. 
   

The US Dollar Index (DXY) is trading at 103.80, reflecting a slight decline. The underperformance comes after the report of soft January housing data from the US, while the Federal Reserve (Fed)'s expressed hesitation toward premature rate cuts may limit the downside. Looking forward, investors await significant forthcoming reports to glean further understanding of the health of the economy including Core and Personal Consumption Expenditures (PCE) and Gross Domestic Product (GDP) revisions later this week.

The Fed, unwavering since January's FOMC meeting, rejects premature rate cuts. Markets heed the stance with the odds of March and May cuts remaining low. As for now, the best-case scenario for markets is that the bank will start cutting in June, but it will all come down to the incoming data. PCE data and GDP revisions will be key.

Daily digest market movers: US Dollar weakened by soft housing data

• January's New Home Sales, as reported by the US Census Bureau, exceeded market expectations by 0.66M against the forecast of 0.68M. 
• As per the CME FedWatch Tool, a hold in the March and May meetings are being priced in, while the odds of a cut in June remain the strongest case, but the odds are somewhat low, around 53%.
• In case PCE and GDP data come in softer than expected, those odds may change in favor of dovish rhetoric and weight on the US Dollar.

Technical analysis: DXY Index’s bearish movement dominates as sellers conquer key level

On the daily chart, the Relative Strength Index (RSI) exhibits a negative slope residing in negative territory, an indication that selling pressure outweighs buying momentum in the market. Concurrently, the Moving Average Convergence Divergence (MACD) signals a bearish outlook as well. The red bars are lengthening on the histogram, implying rising selling momentum. This highlights an amplified bearish force, contributing to the weakening of the pair.

However, the positioning of the Simple Moving Averages (SMAs) paints a more nuanced picture. Despite the Index now trading below the 20-day and 100-day SMAs, which supports the bearish sentiment, it's still above the 200-day SMA. This upward breach can be interpreted as a demonstration of robust resilience by the bulls in the larger context, hinting that buyers are fighting to regain control. That being said, credit should be granted to bears, who managed to breach the key 20-day average, which recently acted as a key support.

This suggests that, for now, the selling force is dominant over the buying momentum, but if the buyers defend the 200-day SMA, the overall positive bias will remain intact.