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Resilience in the US Dollar Following March's Durable Goods Orders

Published on April 24, 2024, by Gary Phillips

Economic Indicators Bolster the US Dollar

On April 24, 2024, the US dollar showed a modest increase, underpinned by strong economic indicators and elevated Treasury yields, suggesting that its ascent might persist. Data released in March for Durable Goods Orders proved robust, contributing to a bullish outlook on the currency.

Federal Reserve's Hawkish Outlook Supports Dollar Strength

The Federal Reserve's unwavering hawkish stance continues to lend support to the dollar, especially in light of the resilient US economy. Despite softer preliminary PMI data in April, high US Treasury yields—spurred by substantial supply—have helped maintain upward pressure on the dollar. Key economic reports to watch this week include the Personal Consumption Expenditures (PCE) for March and preliminary Gross Domestic Product (GDP) figures for the first quarter, which are likely to influence market sentiments further.

Durable Goods Orders Indicate Economic Stamina

The Durable Goods Orders in March recorded a 2.6% increase, a revision from the initially reported surge of 1.3% to 0.7%. Excluding transportation, orders saw a modest uptick of 0.2%, correcting a previous decline. These figures underscore the ongoing economic strength and are likely to keep easing expectations at bay. Current market forecasts suggest minimal probability of a rate cut in the upcoming Federal Reserve meetings, with a slight chance in July and low expectations extending into September.

Treasury Yields and Market Movements

Treasury yields exhibited a mixed pattern with the two-year bond yield at 4.93%, and both the 2-year and 10-year yields hovering around 4.65%. Although yields fluctuated mid-week, the general trend supports a stronger dollar.

Technical Analysis: Dollar's Path Forward

Technical indicators offer a mixed view. The Dollar Index (DXY) shows continuous, albeit slow, bullish momentum. The Relative Strength Index (RSI) remains in positive territory, indicating sustained buying interest, though the direction remains unclear. Additionally, the Moving Average Convergence Divergence (MACD) shows decreasing green bars, hinting at a potential slowdown in bullish momentum and possibly a shift towards bearish territory.

However, trading above its 20, 100, and 200-day Simple Moving Averages (SMAs), the DXY suggests that the long-term bullish sentiment in the market still prevails despite short-term fluctuations.

Overall, while the US dollar faces mixed short-term signals, the broader economic context and Fed policies are likely to continue supporting its strength in the market.

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