So far in 2024, DXY continues to trade in boxes. The reasons are pretty much the same as observed below. Data keeps coming in stronger for US, and markets do not actually want to believe it because higher inflation is in no one’s forecast. Further to this, synchronized global macro backdrop means that ECB/BoE will more or less match the Fed on cuts/easing.
Stocks are pricey but as long as risk assets trend higher, its keeps vols compressed and that is negative for the #dollar. In addition, the expectation that soon the RoW will catch up with US in terms of economic growth & rates (Chinese policy measures will bring a rebound, UK real income growth helps, EZ out of recession now, BoJ will hike etc.), helps the Dollar bears.
But the hard data is not playing ball. Hence, the “You shall not pass” price action!
DXY 2024 seems to be a tale of False Breaks!
The macro setup is finely balanced right now for Dollar. Stronger economic data vs market expectation of lower rates and risk-on across the equity markets. EU economic data doesn’t look good, but Chinese stimulus is keeping things in balance right now.
I guess for the short term the important factor is which side do we see this break – this depends on what happens to market pricing for March cut (right now, at approx 50%). Right now it seems this probability will likely go lower and will be positive for the Dollar.
In the medium term, the outlook depends on what happens with inflation and if global centralbanks can achieve a soft landing. That looks increasingly plausible, (at least for US) and with risk sentiment supported, this would be a moderately negative development and keep strong rallies in check for DXY.
