US Dollar gains momentum on strong housing data, eyes on FOMC

• 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.