US Dollar Struggles to Find Liftoff, No Bottom Yet
- DXY Index continues to fade in the second half of trading sessions, no real appetite just yet to restart the rally.
- DXY Index has yet to clear its daily 21-EMA or the 101.03 level, so no bottom yet.
- Keep an eye on short-term positioning shifts with the DailyFX Speculative Sentiment Index.
There haven't been many significant developments for the US Dollar Index (DXY) or its components over the last 24-hours, as the three technical hurdles discussed in yesterday's note remain: DXY has not closed above its daily 21-EMA yet; daily MACD remains below zero; and we have yet to see a close through 101.03, the swing high (and key reversal on the 4-hour timeframe) from January 30.
Yet that doesn't mean FX markets are absent of significant developments ex-DXY; the New Zealand Dollar (not a component of the broader index) has broken down sharply since the RBNZ rate decision yesterday afternoon. On the surface, the RBNZ's hold seems lackluster and unsurprising; ahead of the meeting, there was only a 1.1% chance of a rate move, per overnight index swaps.
Nevertheless, it was the dissonance between the market's rate expectations and what the RBNZ said that proved to be the catalyst for the recent NZD selloff. Ahead of the meeting, overnight index swaps were pricing in a 76% chance of a 25-bps rate hike by the end of 2017. However, the RBNZ said that they anticipated that their overnight cash rate would stay on hold at its current level through the end of Q4'17. In effect, the RBNZ said, "your rate expectations are overblown; we don't think we're going to raise rates this year."
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--- Written by Christopher Vecchio, Senior Currency Strategist
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