Investors remain convinced that the Federal Reserve will lift its interest rate target when its meeting concludes on March 21 with new forecasts and a press conference.  Recent disappointing data, especially average hourly earnings, and retail sales, coupled with a core CPI that has been stuck at 1.8% for three months has seen some investors come to accept our view that the Fed is unlikely to signal four hikes this year, even if some of the doves revise up their hikes from two to three. The Atlanta Fed’s GDPNow tracker and several money center banks have revised their Q1 GDP estimate to below 2%.

The Dollar Index is taking a four-week advancing streak into the week ahead. It is the longest advance since last October.  Yet it is not really rallying as much as consolidating the decline that began the year. In fact, the Dollar Index remains slightly below where it finished last month. The technical indicators collectively appear somewhat supportive, but the 91.35-91.40 band seems to be blocking a run at 91.00., which is the key to any meaningful recovery.

The euro was slightly softer for the second consecutive week. ECB’s Draghi and Praet’s insistence on continued patience (with the current monetary settings) coupled with a slight downward revision to the February CPI (1.1.% from 1. 3% in January and an initial estimate of 1.2%) weighed on the euro over the past three sessions.

Still, the euro is up a cent since the start of March.  The trendline we identified last week, drawn off the February 2 high, held on the mid-week test, which increases its significance. It is found near $1.2345 at the end of next week. The technical indicators are not generating a strong signal but seem to favor some more softness. The $1.2250-$1.2270 offers initial support, while a sustained break of the $1.2155 area is needed to confirm a top. 

In the second half of February, the dollar could not overcome offers near JPY108. Here in the first half of March, it struggles at JPY107. Several factors have encouraged investors to keep the dollar in its trough against the yen.