US dollar, yields dragged lower with consumer confidence, reviving rate-cut bets

View related analysis:

Fed rate-cut bets are on the rise again after following another weak consumer sentiment report weighed on sentiment and warned of a slowing US economy.

In a report titled “Pessimism about the future returned”, consumer has fallen to an 8-month low according to the US Consumer Board. The 7-point month-over-month drop was its fastest deterioration in over three years, and the expectations index fell 9-points to 72.9 – firmly beneath the 80 threshold the CB use to single a likely recession in the next 12 months.

This follows on from another weak consumer sentiment report, which also saw 1-year inflation expectations spike higher according to the University of Michigan. The US services sector entered contraction in February, according to the flash PMI report from S&P Global on Friday. At 47.9, its was the first contraction in two years and was accompanied with higher prices paid. Consumer sentiment

Bets of a Fed interest rate cut are beginning to creep higher, with Fed fund futures implying a 25bp cut in June at 53.6%.

The US yield curve was broadly lower, with the 2 – 30-year rates all falling at a faster pace than their negative 1-year average rate. The 2-year yield traded briefly beneath 4.1% and teased the December low, and finds itself down for a third week. The US 10-year yield is back below 4.3% for the first time this year and amid its 7^th week low – its most bearish sequence since July 2019.

US dollar index futures (DX) technical analysis

The US dollar index is down -3.6% from its 110 highs, although it’s trying to hold above a 38.2% Fibonacci retracement level (106.02) and 100-day SMA (106.03). A small bullish hammer also formed on Monday to suggest demand around 106, despite the sharp declines of yields.

Ultimately I suspect we could be looking at a move to 105 for the US dollar index, though it is clearly trying to hold 106 for now. The daily RSI (14) is trending lower and not oversold, so any bounces from, here could favour bears who seek to fade into any such move. We also need to factor in an oversold weekly RSI (2), but it can remain oversold for a few weeks at a time before any meaningful bounce occurs.

For now, the bias remains bearish and to fade into moves up to 107 and a move lower to 105, before a larger bounce materialises.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.