US Dollar holds gains despite weak housing data

• DXY Index witnesses minor incline, hitting an early November peak at 106.30.
• Prior to Powell's speech, US Dollar gained following strong Retail Sales data.
• US housing data reveals weakness with Building Permits and Housing Starts falling.
• Investors await further economic reports for more clarity on the health of the US economy.

The US Dollar Index (DXY) is trading at 106.30 with gains on Tuesday, and the DXY continues to benefit from robust Retail Sales data revealed on Monday. Weak housing data didn't trigger any reaction from the USD, and markets await Jerome Powell's speech later in the session.

The US economy is witnessing robust growth and persistent inflation. Meanwhile, the Federal Reserve (Fed) sends mixed signals: that it's not keen on rate increases but welcomes market-led tightening via higher yields. Following the report of strong March inflation and labor data, easing expectations for June and July have plummeted, which fueled the USD's rally.

Daily digest market movers: DXY holds strong despite weak housing data, eyes on Powell

• March's Building Permits recorded a decline of 4.3%, descending to 1.458 million, beneath both the projected 1.514 million and February's 1.523 million.
• Housing Starts witnessed a notable descent of 14.7%, collapsing from 1.549 million to 1.321 million, not reaching the expected total of 1.48 million.
• Industrial Production for March rose by 0.4% MoM, matching expectations.
• Powell's comments later in the session might trigger movements in the market. Any hawkish signals could further benefit the USD.
• After the recent inflow of robust US data, market participants are adjusting their easing anticipations. At present, the market anticipates the initial rate cut to materialize in September with a 70% probability for a second cut in December.
• The investor's expectations of a June rate cut have diminished to 25% against 60% the previous week.

DXY technical analysis: DXY continues gaining ground, bulls might eventually take breather

The indicators on the daily chart reflect a bullish scenario for the DXY. The Relative Strength Index (RSI) is showing overbought conditions, typically indicating strong upward momentum. Similarly, the Moving Average Convergence Divergence (MACD) has rising green bars, showing a positive momentum in favor of bulls. However, the rally might have become overextended as these indicators flash overbought signals and might correct in the next sessions.

In addition to this, the currency index is trading above all its Simple Moving Averages (SMAs) at 20, 100 and 200 days. The SMAs suggest a long-term bullish trend. Together, these indicators show that buying momentum is dominant over selling momentum.