US Dollar slides, as S&P 500 futures jump on tech earnings boost

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• US Dollar resumes the downside following Tuesday’s correction.
• Top-tier economic data and tech earnings from the United States this week to affect USD valuation.
• Downside appears compelling for the US Dollar Index amid the bearish daily technical setup.

The United States Dollar (USD) is back in the red after a temporary rebound seen on Tuesday. An improving market mood appears to be weighing on the US Dollar’s safe-haven appeal. The US S&P 500 futures are up 0.50% so far, cheering better-than-expected earnings from Microsoft and Alphabet after markets closed in New York. Meanwhile, the US Treasury bond yields have paused their sell-off amid reduced demand for the US government bonds.

However, concerns over the US debt ceiling continue to linger alongside the banking sector fears, as investors gear up for the release of the top-tier United States Consumer Durable Goods Orders data. Earnings from the US tech giant, Meta, will also garner attention later in the American session.

On the macroeconomic front, the first quarter Gross Domestic Product (GDP) and April Personal Consumption Expenditures (PCE) Price Index will be closely scrutinized in the second half of this week.

The US Dollar Index, which tracks the USD performance against a basket of six major currencies, drops below 101.50 on Wednesday. The index gained 0.56% on Tuesday.

Daily digest market movers: US Dollar sell-off resumes

• On Tuesday, the European Central Bank (ECB), the Bank of Japan (BoJ), the Bank of England (BoE) and the Swiss National Bank (SNB) announced in a joint statement that they will reduce the frequency of their dollar operations with the Fed from May 1 as the volatility in financial markets has receded.
• Consumer sentiment in the US weakened modestly in April with the Conference Board’s Consumer Confidence Index edging lower to 101.3 from 104.0 in March (revised from 104.2).
• Wall Street’s main indices tumbled on resurfacing US banking jitters after the troubled US bank, First Republic Bank, shares slumped 50%. The bank said it lost customer deposits of $102 billion in the first quarter.
• Concerns grew over the approaching US debt ceiling deadline after the House Rules Committee unexpectedly went into recess, delaying a Republican bill authorizing a $1.5 trillion increase to the US debt ceiling. The panel will return early Wednesday.
• 10-year US Treasury bond yields attempts a minor recovery after shedding nine basis points (bps) on Tuesday.
• Markets are currently pricing a roughly 75% probability of a 25 bps Fed rate hike next week, down from about a 90% probability seen at the start of this week.
• The Fed is in the blackout period ahead of its May 3 monetary policy announcements.
• Earnings from US tech giant Meta and the Durable Goods Orders data will be on the cards this Wednesday.
• The US Bureau of Economic Analysis will unveil the first estimate of first-quarter GDP growth on Thursday. The US economy is forecast to expand at an annualized rate of 2% in Q1, down from the 2.6% recorded in the last quarter of 2022.

Technical analysis: US Dollar Index sellers retake control

The US Dollar Index (DXY) is turning south after failing to clear the 102.00 key level. Tuesday’s rebound from the weekly trough is fading, as sellers are fighting back control.

The bearish 21-Day Moving Average (DMA), now at 101.89, continued to limit bullish attempts. It is worth noting that the index has failed to settle above the 21 DMA since March 15 on a daily candlestick closing basis.

The 14-day Relative Strength Index (RSI) is pointing south while below the midline, justifying the ‘sell on rise’ trades seen in the US Dollar Index. Immediate support is seen at the previous day’s low of 101.19, below which the 101.00 round number will test the bullish commitments. Deeper declines will seek validation from the multi-month low reached on April 14 at 100.78.

Alternatively, acceptance above the 21 DMA hurdle will likely initiate a fresh upswing toward the 102.50 psychological barrier, beyond which the confluence of the downward-sloping 50 and 100 DMAs at around 103.25 will be on buyers’ radars.