US Dollar Stays Resilient, Gloomy Demand Outlook Weighs On Oil Prices

The US Dollar (USD) keeps footing following Wednesday’s modest rebound as investors avoid risk-sensitive assets. Meanwhile, the renewed USD strength and growing concerns over a worsening demand outlook lower crude oil prices. Signs of sticky inflation in significant economies remind market participants that central banks could cling to tight monetary policies at the cost of a slowdown in activity.

The US Dollar Index, which tracks the USD performance against a basket of six major currencies, stays in a tight range near 102.00 on Thursday. The index stays in positive territory weekly, looking to snap a five-week losing streak. 

Daily Digest Market Movers: US Dollar Index Stays Quiet Ahead Of US Macroeconomic Data

  • The US Department of Labor will release the weekly Initial Jobless Claims data on Thursday, which is forecast to tick up to 240,000.
  • The US economic docket will also feature March Existing Home Sales and the Federal Reserve Bank of Philadelphia’s Manufacturing Survey. 
  • Stronger-than-expected Consumer Price Index (CPI) data from the UK revived fears over sticky global inflation and triggered a rally in global bond yields.
  • The benchmark 10-year US Treasury bond yield turned north early Wednesday. It climbed to its highest level in nearly a month, above 3.6%, before going into a consolidation phase slightly below that level on Thursday.
  • Crude oil prices fell sharply on Wednesday, and the barrel of West Texas Intermediate lost more than 2%. WTI stays under selling pressure and trades at its lowest level over two weeks, below $78.
  • The Federal Reserve’s Beige Book showed late Wednesday that manufacturing activity was widely reported as flat or down even as supply chains continued to improve. “Overall price levels rose moderately during this reporting period, though the rate of price increases appeared to be slowing,” the publication further read.
  • “After the failure of two large regional Fed banks last month roiled the financial sector, I’m waiting to see whether there are other credit shoes to drop,” said Chicago Federal Reserve Bank President Austan Goolsbee in an interview with American Public Media’s Marketplace on Wednesday.
  • NY Fed President John Williams reiterated that it was too early to assess the economic impact of tighter credit conditions. He added that they must continue using policy tools to restore price stability. 
  • St. Louis Federal Reserve President James Bullard told Reuters on Tuesday that interest rates will need to continue to rise without clear progress on inflation. Bullard further noted that he still sees the “adequately restrictive policy rate” at the 5.50%-5.75% range and added that holding rates there for longer until inflation is contained is biased.
  • Housing Starts in the US declined by 0.8% monthly in March following February’s increase of 7.3% (revised from 9.8%). Building Permits decreased by 8.8% in the same period compared to the market expectation of +1.45%.
  • The data from China showed on Tuesday that the world’s second-largest economy expanded by an annualized rate of 4.5% in the first quarter, much stronger than the 2.9% growth recorded in the last quarter of 2022. This reading also came in better than analysts’ estimate for an expansion of 4%. Other data revealed that Industrial Production expanded by 3.9% and Retail Sales rose by 10.6% yearly, compared to analysts’ estimate of 7.4%.
  • Richmond Fed President Thomas Barkin said on Monday that he wants more evidence of inflation settling back to target.

Technical Analysis: US Dollar Index Is Yet To Turn Technically Bullish

The US Dollar Index trades slightly below the 20-day Simple Moving Average (SMA), currently at 102.20. If the DXY closes the day above that level, it could target 103.00 (static level, psychological level) and 103.50 (50-day SMA, 100-day SMA).

Meanwhile, the Relative Strength Index (RSI) indicator on the daily chart moves sideways near 50, suggesting sellers refrain from committing to further USD weakness.

On the downside, 101.50 (static level) align as interim support ahead of 101.00/100.80 (psychological level, static level, multi-month low set on April 14). A daily close below that support area could open the door for an extended slide toward 100.00 (psychological level).

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