DXY: US dollar index on edge as US leading index point to a sluggish recovery

DXY: US dollar index on edge as US leading index point to a sluggish recovery

  • The US dollar index (DXY) was relatively unchanged after a series of mixed economic data.
  • Existing home sales dropped by nearly 18% in April as social distancing prevented home transactions.
  • Jobless claims surged while the manufacturing and services sectors improved.

The US dollar index (DXY) was relatively calm as the market reflected on a slew of weak economic data from the US.

US dollar index calm

DXY
US dollar index relatively unchanged

Existing home sales disappoint

Existing home sales dropped by 17.8 per cent in April, according to the National Association of Realtors (NAR). That was the worst decline since April 2010, shortly after the past financial crisis. Analysts polled by Bloomberg were expecting the sales to have declined by 18.9 per cent in April.

The existing home sales measures the change in number of existing residential that were sold in the previous month. It is an important indicator of the health of the economy.

According to NAR, completed transactions for single-family homes, condos, and co-ops declined to 4.33 million. More than 5.23 million homes were sold in April 2019. In a statement, Lawrence Yun, NAR’s chief economist said:

“The economic lockdowns – occurring from mid-March through April in most states – have temporarily disrupted home sales. But the listings that are on the market are still attracting buyers and boosting home prices.”

The association said that the total housing inventory stood at 1.47 million, down by 1.3 per cent from March. Also, properties remained in the market for about 27 days, down from 29 in the previous month.

New home sales have been falling as well. Data released in April showed that only 627,000 new homes were sold in March. In contrast, more than 800k new homes were sold in January this year.

US dollar index calm after disappointing jobless claims data

The US dollar index also wavered after disappointing jobless claims data from the United States. According to the Labour Department, more than 2.43 million Americans filed for jobless claims in the United States.

That brought the total number of people who have filed for jobless claims in the past 8 weeks to more than 38.6 million. Analysts were expecting the claims to jump by 2.4 million.

Part of the reason why claims have increased is that many companies have furloughed their employees. At the same time, congress expanded the number of people who are eligible for claims. As a result, some people are making more money filing for the claims than in their jobs. According to Washington Post, people receiving the benefits get $600 every week.

US PMIs and leading index improve

The US dollar index (DXY) also moved in response to the improving manufacturing and services activity. Data from Markit showed that activity bounced back in May as more states started to reopen.

According to Markit, manufacturing PMI rose from 36.1 in April to 39.8 in May. In the same period, the services PMI increased from 26.7 to 36.9.

The researchers said that the manufacturing sector was witnessing contractions in production and new orders. Backlogs and manufacturing also declined. Similarly, the services sector faced significant low demand whole some industries like hotels are struggling to come back. In a statement, Chris Williamson of Markit said:

“Encouragement comes from the survey indicating that the rate of economic collapse seems to have peaked in April. In the absence of a second wave of COVID-19 infections, the decline should moderate further in coming months as measures taken to contain the coronavirus are steadily lifted.”

Another data that moved the US dollar index (DXY) was the leading index, published by The Conference Board. The index, which combines other indicators, declined by 4.4% in April, after falling by 7.4% in March. In a statement, the board said:

“Business conditions may recover for some sectors and industries over the next few months. But, the breadth and depth of the decline in the LEI suggests that an imminent re-opening of some sectors does not imply a fast rebound for the economy at large.”

Earlier today, manufacturing and service PMI data from Europe and the UK showed that business activity has started to improve.

US dollar index technical outlook

US dollar index
US dollar index (DXY) technical outlook

The US dollar index is trading at 99.24, which is slightly above the day’s low of 99.00. On the four-hour chart, the index is still below the 50-day and 100-day exponential moving average. The index appears to be forming a bearish flag pattern, which means that it may resume declining. If it does, it will likely test the important support at 98.88.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Investing.com. Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.

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