US Dollar steady ahead of volatile ECB and US GDP schedule

• The US Dollar holds its ground ahead of some main market-moving events this Thursday.
• Traders brace for an ECB rate decision, US GDP and weekly US Jobless Claims. 
• The US Dollar Index is caught between a rock and a hard place and could still swing either way.

The US Dollar (USD) trades steady and sideways this Thursday ahead of the first major central bank rate decision for 2024. All eyes will be across the Atlantic Ocean on the European Central Bank (ECB) with a rate decision and later comments from the ECB President, Christine Lagarde. It was only last week that Lagarde said that the summer might be a good moment to cut rates for the first time. Now traders will want to hear that phrase committed in the press conference as a global view from the ECB’s governing council,  making it the bank’s official forward guidance. 

On the economic front, traders will need to have their caffeine shots consumed by 14:15 GMT within just a range of 30 minutes, as not only the ECB rate decision will be released, but additionally a lot of US data. Of course US Gross Domestic Product (GDP) will steal a lot of thunder, but Durable Goods, US weekly unemployment data and New Home Sales will also need to get digested. All this will likely send the US Dollar onto a clear path higher or lower. 

Daily digest market movers: Expect 30 minutes of mayhem

• The European Central Bank will release its official rate decision and guiding letter around 13:15 GMT. A press release with Q&A by Christina Lagarde will follow suit near 14:45. 
• A bulk batch of data to be released near 13:30:
  • Weekly Jobless numbers:
    • Initial Jobless Claims are expected to head from 187,000 to 200,000.
    • Continuing Jobless Claims are seen going from 1,806,000 to 1,828,000.
  • US Gross Domestic Product numbers for Q4:
    • Headline GDP was seen last at 3.3% – there isn’t a forecast this time.
    • Core GDP expected to stay stable at 2.0%.
    • Personal Consumption Expenditures was at 2.6% with no forecast. 
    • Annualised Headline GDP seen heading from 4.9% to 2.0%.
  • US Durable Goods for December:
    • Orders seen heading from 5.4% to 1.1%.
    • Orders without transportation should head from 0.4% to 0.2%.
• Around 15:00 – at the same time as ECB’s Chairman Lagarde will be speaking – New Home Sales for December are due to be released. Expectations are for a jump to 645,000, from 590,000.
• Near 16:00 the Kansas Fed Manufacturing Activity Index for January is to be released. Previous was at -4, with high expectations for a recovery seeing the upbeat PMI numbers from Wednesday where Manufacturing jumped back into growth, from 47.9 to 50.3.
• The US Treasury Department is having a busy day allotting a 4-week bill near 16:30 GMT and a 7-year Note around 18:00 GMT.
• Equity markets are in the green yet again with China roaring after the government has cut the Reserve Ratio Requirements (RRR) for banks, freeing up liquidity. Both the Hang Seng and the Shenzhen Index are up near 2.0%. European equities and US futures are stalling and are rather awaiting further data points. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 97.4% possibility for an unchanged rate decision on January 31, with a slim 2.6% chance of a cut.
• The benchmark 10-year US Treasury Note jumps higher to 4.16% and peaks for this week. Strangely enough, this does not filter through (yet) in a stronger US Dollar. 

US Dollar Index Technical Analysis: Read between the lines

The US Dollar Index (DXY) is, from a purely technical point of view, caught between two very important Simple Moving Averages. Those are the 55-day SMA near 103.17 and the 200-day SMA at 103.50, which acts as the floor and cap respectively. To make matters even worse, the floor (55-day SMA) is heading lower by the day, which opens up more downside than upside potential for the US Dollar in the near term. 

Given the big batch of data released, with the possibility the ECB drops the ball in its communication, there remains still a case for the DXY to get through those two moving averages again and run away. Look for 104.41 as the first resistance level on the upside, in the form of the 100-day SMA. If that gets breached as well, nothing will hold the DXY from heading to either 105.88 or 107.20 – the high of September.  

With the declining floor, more sell pressure could filter through into the price action. Price action could decline substantially should the US data release later this Thursday build a case for that move. This would see the DXY first drop to 102.60, at the ascending trend line from September. Once below it, the downturn is open towards 102.00.