March 23, 2023

USD Declines Against Other Currencies As Treasury Yield Drops – Analysts Predict Slowed Fed Hikes

USD Declines Against Other Currencies on Friday

On Friday, the USD experienced a decline against other currencies as the treasury yield dropped from multi-month highs. As a result, traders took their profits and reevaluated the monetary policy, leading to a dip in the dollar’s value.

According to FXempire, analysts suggest that the market has already factored in the expectation of higher terminal Fed funds rates due to recent upbeat economic data from the US. However, traders predict that the dollar gains will slow down as the Fed will likely stop raising rates due to fears of a recession.

This slowdown in rate hikes will reduce the greenback’s attractiveness to buyers looking for other haven assets. Raphael Bostic, the Atlanta FED president, has emphasized that the economy needs to adopt a slow and steady approach, despite the positive addition of labor figures.

Bostic’s remarks highlight the need for cautious optimism in the current economic climate. Meanwhile, the dollar experienced a dip of 0.49%, closing at 104.488 at the end of the day. Despite the recent market uncertainties, the dollar recovered some losses due to positive US services data.

The latest report indicates that the services sector continued to grow steadily, albeit slowly, with new orders and employment rising to one-year highs in February.

The US services sector’s Purchasing Managers’ Index (PMI) dipped slightly to 55.1 in February, down from 55.2. While this indicates a slight drop in growth, the index is still above 50, indicating that the services sector is expanding.

Daily Technical Analysis

Based on the daily swing chart, the main trend for the greenback appears to be upward. However, the USD momentum is trending in the opposite direction. Therefore, to confirm the resumption of the bullish cycle, the dollar needs to trade above 105.320.

This level can be a crucial resistance level for market participants to watch out for going forward. On the other hand, if the dollar drops below the 104.045 mark, it may indicate a reversal of the current trend and suggest that the main trend going forward will be downward.

The nearest resistance level can be found at the long-term 50% Fibonacci level, consolidating at 105.723. This level could be a significant obstacle for the dollar to overcome in the short term.

On the other hand, the closest support level will involve a long-term Fibonacci level consolidating at 103.664. This level may support the dollar if it starts to move downward. The market was indecisive, trading around 50% Fibonacci levels at 104.683 and 104.503.

US Dollar Technical Forecast

As March settles, analysts watch how traders react to the market uncertainty at 104.503 and 104.683. The next week is expected to be troublesome as investors digest the current data and look forward to more data from countries around the globe.

As an investor, it is important to wait for the upside bias to resume and sustain momentum above 104.683. However, watch out for the downside bias and be cautious of a move below the 104.53 mark.

Counter-trend bears’ main target will be a long-term move above the Fibonacci level at 103.664. On the other hand, if the USD continues to trend downward, it may signal a long sell-off period.

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