The US Dollar (USD) is facing downward pressure and is once again flirting with breaking below 104 in the US Dollar Index (DXY). While the USD exhibited strength earlier in the European trading session, concerns have risen as the EU imposed new sanctions, targeting Chinese and Indian companies accused of supplying materials to Russia for weapons production. Additionally, comments from US Fed's Barkin, emphasizing the need for services inflation to decrease before considering rate cuts, have dampened the prospect of an imminent reduction.
On the economic data front, traders are anticipating the release of the Fed Minutes later in the day. The fragility of the market is evident, with traders closely monitoring any indications regarding future rate policies. The possibility of a rate hike in the next three months, mentioned in a Wall Street Journal Marketwatch article, adds uncertainty, even though it is not reflected in the US Chicago Mercantile Exchange Fed fund futures but appears in options linked to the Secured Overnight Financing Rate.
Key market movements include the EU implementing fresh sanctions against Russia on Friday, impacting several Chinese and Indian companies. The weekly Mortgage Bankers Applications (MBA) Index has further declined by -10.6%. The delayed Redbook Index, released around 13:55, increased from 2.5% to 3%. Richmond Fed member Charles Barkin's comments have contributed to a negative market sentiment.
The US Treasury Department plans a 20-year bond auction around 18:00, and the US Federal Reserve is set to release the Minutes from its latest meeting near 19:00. Speeches from US Atlanta Fed President Raphael Bostic (13:00) and Federal Reserve governor Michelle Bowman (18:00) are scheduled before the Minutes.
Equity markets are showing disparities, with China experiencing gains, while European equities, particularly the British FTSE100, are down around 1%. US equity futures are trading in the red ahead of the US opening bell. The CME Group’s FedWatch Tool indicates a 93.5% expectation for a pause and a 6.5% chance of a rate cut at the March 20th meeting.
The benchmark 10-year US Treasury Note is trading around 4.28%, slightly softer than the previous day's opening. The US Dollar Index (DXY) technical analysis suggests vulnerability, especially if the Fed Minutes trigger a move towards 105.00. Key levels to watch include 105.12 and, beyond that, 105.88 (November 2023 high). A potential rise to 107.20, the high of 2023, may come into consideration if inflation measures consistently surpass expectations.
Technical indicators such as the 100-day Simple Moving Average and the 200-day SMA at 104.13 and 103.72, respectively, offer insights into potential support levels, with additional support near 103.17 from the 55-day SMA.
