US Dollar rallies ahead of second US Q4 GDP estimate

• The US Dollar trades in the green across the board.
• Market sentiment turns into risk-off, with equities in the red in both Asia and Europe.
• The US Dollar Index recovers above 104.00, posting a fresh five-day high. 

The US Dollar (USD) is recovering on Wednesday to a five-day high driven by safe-haven inflows. Markets got shaken by a mix of elements coming from China and New Zealand. In China, additional measures were issued to support the housing, leisure and gaming sector, although stimulus was far less than what markets were expecting.

On the economic front, markets had to digest a surprisingly dovish stance from the Reserve Bank of New Zealand (RBNZ), which limited the odds of future rate hikes. In the US calendar, all eyes will be on the second reading for the US Gross Domestic Product (GDP) for the fourth quarter, although not much movement is expected. Rather, some volatility can be expected near the European close as no less than three Fed speakers will take the stage within a one-hour timeframe. 

Daily digest market movers: Risk off sets the scene

• Ahead of the US session, some European Central Bank (ECB) comments from ECB's Peter Kazimir, who said that disinflation is taking place much quicker than expected, and that there is no reason to rush for a rate cut, with June as best guess from the ECB member. 
• The Mortgage Bankers Association (MBA) has released its Mortgage Applications Index for this week. Last week there was a decline of 10.6%, with this week another 5.6% decline.
• At 13:30 GMT, the second reading  of the US Gross Domestic Product (GDP) for the fourth quarter will be released:
  • Headline GDP is expected to grow at an annualized rate of 3.3%, unchanged from the first estimate.
  • Core Personal Consumption Expenditures is also set to remain unchanged from the previous estimate at 2%.
  • The quarterly Personal Consumption Expenditures Price Index is expected to remain unchanged at 1.7%.
• Between 17:00 and 17:45 GMT, three US Federal Reserve officials are due to take the stage. 
  • At 17:00 GMT, Atlanta Fed President Raphael Bostic will speak first.
  • Near 17:15 GMT, Boston Fed President Susan Collins will follow.
  • At 17:45 GMT, New York Fed President John Williams will take the stage. 
• Equities are in the red across the board. Especially the Chinese equities, with both major indices down over 1% after disappointing supportive measures for the construction, leisure and gaming sector.  European and US equities are all in the red, though less than 0.50%.
• According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 99.5%, while chances of a rate cut stand at 0.5%. 
• The benchmark 10-year US Treasury Note trades around 4.29%, and is not far off this week’s peak at 4.32%.

US Dollar Index Technical Analysis: Risk remains for another leg lower

The US Dollar Index (DXY) has brushed off over five days of losses, setting a new five-day high on Wednesday. The move comes with the risk-off inflows after both Chinese stimulus measures and a dovish Reserve Bank of New Zealand rate decision disappointed markets. Do bear in mind that month-end flows are often negative for the US Dollar, so current gains possibly will be given up by Thursday. 

To the upside, the 100-day Simple Moving Average (SMA) near 104.00 is being tested as its resistance got broken, though could still shape into a bull trap. Should the US Dollar be able to cross 104.60, 105.12 is the next key level to keep an eye on. One step beyond there comes 105.88, the high from November 2023. Ultimately, 107.20 – the high of 2023 – could even come back into scope, but that would be when markets reprice the timing of a Fed rate cut again, possibly delaying it to the last quarter of 2024. 

Looking down, the 200-day Simple Moving Average at 103.74 has been broken twice recently, making it a weak support. The 200-day SMA should not let go that easily, so a small retreat back to that level could be more than granted. Ultimately, it will lose its force with the ongoing selling pressure and could fall to 103.16, the 55-day SMA, before testing 103.00.