Fed speakers this week supported 50-bps rate increases at the May 5th & 6th meeting.
US Dollar Index Forecast (DXY). Bulls aim for January 2017 highs of 103.82.
The US Dollar Index measures the greenback's price against six currencies and closed the week at 101.118. However, it was still below the 2 year high of 101.331.
Fed spoke throughout the week, which fueled the demand for the buck. The greenback was also supported by rising US Treasury yields. In the week ended at 2.903%, the benchmark US Treasury yield won 2.69%.
Summary of Fed speaking
Jerome Powell, Fed Chair, blessed a half point interest rate hike by the May 4-5 meeting. Money market futures fully price in a 0.50% increase to the Federal Fund rate, which would raise it to 1%.
Loretta Mester, Cleveland's Fed President, stated that she wants to see the Fed get to neutral at 2.5% by the end. This was Friday's last Fed speaker before the May blackout. Mester said that 75-bps increases are not necessary. She also supported an additional 50-bps increase in May, and some more after.
James Bullard, the President of the St. Louis Fed, admitted that the Fed is behind but not as everyone thinks. He also said that the Fed had hiked 75bps before the end of the world.
Mary Daly, San Francisco Fed President, stated that the Fed will likely raise rates by 50 basis points at a few meetings. Yahoo Finance Interview reports that she is open to discussing the size of any increases. Daly stated that the Fed must maintain a steady pace with rate increases and keep rates at 2.5% by the end.
The US docket
The US economic calendar would include March's Durable Goods Orders, March's US Gross Domestic Product for Q1, and March's Core Personal Consumption Expensiture (PCE), based on monthly and annual readings.
Analysts at ING anticipate that Q1 data will show that the US economy expanded at a 1-1.5 percent annualized rate. This would be lower than Q4 2021 at 6.9%. It is a reflection of the Omicron wave, which severely affected mobility.
"But, recent data points to an uptick of activity and we expect to witness stronger GDP growth for second quarter. Based on the ISM report and regional manufacturing data, durable goods orders should be strong. Also, higher Boeing aircraft orders will help to support this. We expect a little more weakness in housing data, as rising mortgage rates will take some steam out of housing market.
US Dollar Index Forecast (DXY),: Technical outlook
As shown by the daily chart, the US Dollar Index (DXY), retains an upward bias. The DXY value is well below the 50- and 200-day moving averages, respectively at 95.459 and 98.487, which further confirms the upside bias. If the DXY makes another run up near January 2017 highs of 103.82, then the Relative Strength Index at 67.22 will have enough room to spare before it reaches overbought conditions. It would have to first overcome some obstacles on the way north.
DXY's first resistance would be at 102.00. Breaking above would reveal March's 24-day high at 102.21, March's 20 2020 high at 102.99, and then the previously mentioned 103.82 swing high.