Dollar treads water, awaits impetus for direction

Today’s trading has been calm, with the US dollar trading sideways and experiencing low volatility as US markets are closed Monday for a holiday.

US housing market is deteriorating

Later this week, we will receive additional housing market information, including new and existing house sales for January. Existing house sales are seen to have increased to 4.11 million units in January, up from 4.02 million in December. This would be the first rise in sales since January of last year, when they reached a total of $6.49 million.

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Also, new house sales are expected to rise slightly to 620,000, up from 616,000 in December. Last month’s home sales were likely bolstered by the decline in mortgage rates, which reached 20-year highs late in 2022. The average rate on a 30-year fixed-rate mortgage decreased to 6.09% at the beginning of February, after reaching a high of almost 7% in late October.

Another inflation update

The Bureau of Economic Analysis (BEA) will issue the Personal Consumption Expenditures (PCE) Price Index for January on Friday. This is the Fed’s favored measure of inflation. The PCE price index is predicted to have increased 0.3% last month, accelerating from gains of 0.1% in each of the two prior months. As a result, prices likely grew 4.8% annually, a decrease from December’s annual increase of 5%.

Excluding volatile food and energy costs, core prices are anticipated to have increased by 0.5% in January, accelerating from 0.3% in December. Year-over-year, the core index likely slowed to 4.3% from 4.4% in December and the 5.4% top marked in February last year.

The Fed prefers the PCE Price Index as it more accurately reflects the purchasing decisions of American consumers. In addition, the basket of goods and services comprising the index is updated more regularly than the basket of goods and services used by the Consumer Price Index (CPI), which is fixed.

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Technically speaking, the dollar index remains in a short-term uptrend, but with some bearish divergence on the two-hour chart, likely implying the uptrend might be over soon. The intraday support could be at previous lows of 103 before the double bottom level at around 102.65.

On the upside, the resistance is expected at last week’s top at 104.50. Bulls must push the index above that level to confirm the bullish trend.