DXY slides below 97 ahead of FOMC minutes, U.S. housing starts and building permits likely to soften

The dollar weakened against the yen Tuesday as oil prices resumed their slide despite an agreement by several major oil producers to freeze production. The ICE U.S. Dollar index DXY at 96.78 (-0.06%) a measure of the greenback's strength against a basket of six rival currencies, was up 1% at 96.6220, largely due to weakness in the pound cable -0.0769% which traded at $1.4295 Tuesday, compared with $1.4437 Monday.

A weaker-than-expected reading on U.K. inflation weighed on the country's currency as traders bet it would delay an interest-rate hike by the Bank of England.

Next week's data on actual sales activity should provide further indication on the health of the US housing market; we continue to view the sector as in a mode of gradual recovery.

As the FOMC had dropped the sentence regarding the balance of risks to the outlook in its last statement, it will be interesting to see the motivation behind this decision in today's minutes.

Furthermore, we will be looking for any additional insights into the FOMC's latest assessment of the implications of global economic and financial development for the balance of risk.

A projected pickup in non-automotive manufacturing output, combined with a weather-related snapback in utilities generation, likely propelled the Federal Reserve Board's industrial production gauge 0.4% higher in January, completely reversing the decline posted at the end of 2015.

Our forecast - the first increase since last August - would place January's output level 0.5% annualized below the October-December average, following a 3.4% contraction during the autumn quarter.

Today's US homebuilder sentiment likely to soften for February,

The NAHB Housing Market Index declined to 58 in February, a disappointment relative to our forecast (61) and consensus expectations (60).

The January reading, however, was revised up to 61 (initial: 60) on account of stronger present and future single-family sales activity.

This month's softening was led by present sales (65, previous: 68) and prospective buyers traffic (39, previous: 44). Future single-family sales improved a touch, to 65 (previous: 64).

The regional breakdown of the data indicates that the February softening was broad based:

the Northeast (45, previous: 47), Midwest (57, previous: 59), South (57, previous: 60), and West (68, previous: 73) sub-indices all declined on the month.

EUR/USD: 1.1119-1.1179 overnight range. Bearish outside day for the DAX yesterday, beware of further drop and EUR/CHF selling.

Nowotny plays down expectations for the March ECB meeting. Large €3bln+ option expiries today 1.1100-1.1200.

USD/JPY: 113.38-114.40 overnight range. BoJ negative rates came into effect yesterday without scaring JPY bulls as Nikkei fails to gain a foothold over 16k. Option expiries $1.2 bln+ between 115.00-116.00.

EUR/JPY on the back foot, support 126.38. GBP/USD: 1.4245-1.4309 overnight range. The burden of EU expectations appears too high. Return to 1.4080 in play after 1.4305 gave way.

Third draft of EU deal today. EUR/GBP back over 0.7800, res 0.7850/76. AUD/USD: 0.7084-0.7120 overnight range. January employment data in focus tonight for next RBA move, curve implies 41% chance of 25bp cut to 1.75% in H1.