US Dollar rally loses momentum as Fed data-driven thesis is set for another test

• The US Dollar retreats a touch on Monday after failing to break Friday's high. 
• Traders are looking forward to a very choppy trading week, with a bank holiday on Friday.
• The US Dollar Index steadies in the mid-104.00 range ahead of GDP and PCE data.

The US Dollar (USD) is facing a “pop quiz” moment before traders can enjoy a bank holiday this week,  with many trading desks and markets across the globe closed on Good Friday. Traders will likely continue to speculate on whether the Fed’s thesis of three cuts for this year is still valid, with a few interesting leading economic indicators and US Gross Domestic Product (GDP) numbers at hand. As if that is not enough, on Good Friday (with thin liquidity and most markets closed), the US will release the Fed’s preferred inflation gauge: the Personal Consumption Expenditures (PCE) Price Index for February. 

On the economic data front, Monday offers a soft opening for the trading week with only US New Home Sales as the data point to trade on. Three US Federal Reserve members are due to make an appearance: Lisa Cook, who is a member of the Board of Governors at the Fed, Chicago Fed President Austan Goolsbee and Atlanta Fed Raphael Bostic. In the bond market, the US Treasury will be very active with three bond auctions taking place this Monday. 

Daily digest market movers: Asia has a hangover 

• The People’s Bank of China (PBoC) fixed its Yuan substantially stronger against the US Dollar, triggering a lower USD/CNH, which, in a domino effect, puts the Greenback on the backfoot. 
• The release of Minutes from the latest Bank of Japan meeting saw equities in Japan plunge as the documents signalled that the BoJ is considering to hike interest rates more than what markets were expecting. 
• This Monday kicks off with New Home Sales data for February at 14:00 GMT. In January, sales rose by 1.5%.
• Three Fed speakers on the docket for this Monday:
  • Atlanta Fed President Raphael Bostic will speak at 12:25 GMT.
  • Chicago Fed President Austan Goolsbee will speak around 13:05 GMT. 
  • US Fed Board member Lisa Cook will speak around 14:30 GMT. 
• The US Treasury is set to allocate three fresh bond issuances this Monday:
• A 3-month and a 6-month bill near 15:30 GMT. 
• A 2-year note is expected to be placed at 17:00 GMT. 
• Equities are falling sharply on Monday. Asia indices are down, led by Japan’s Nikkei, which closed off at more than 1% in the red ¡. Europe is following suit, with a negative opening for both the Stoxx 50 and the German Dax, while US Futures are roughly flat.  
• According to the CME Group’s FedWatch Tool, expectations for the Fed’s May 1 meeting are at 89.2% for keeping the fed funds rate unchanged, while chances of a rate cut are at 10.8%.
• The benchmark 10-year US Treasury Note trades around 4.21%, the lower end of this week.

US Dollar Index Technical Analysis: Who is right and who is wrong?

The US Dollar Index (DXY) is trading broadly steady above 104.00. However, some easing could be in the cards this week as the Greenback looks for that equilibrium between the dovish Fed and the rather challenging markets on that possible outcome. The truth will probably be somewhere in the middle, which means the DXY could retreat a few points to challenge 104.00 and snap below this barrier by the end of the week. 

The DXY is still eyeballing that pivotal level near 104.60, where last week’s rally peaked out.  Further up, 104.96 remains the first level in sight. Once above there, the peak at 104.97 from February comes into play ahead of the 105.00 region, with 105.12 as the first resistance. 

Support from the 200-day Simple Moving Average (SMA) at 103.72, the 100-day SMA at 103.50, and the 55-day SMA at 103.61 are getting a fresh chance to show their importance. The 103.00 big figure looks to remain unchallenged for now after the decline from the Fed meeting last week got turned around way before reaching it.