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- US Dollar afloat ahead of US Retail Sales
US Dollar afloat ahead of US Retail Sales
- The Greenback trades sideways as Monday was full of geopolitical headlines.
- Expect some fireworks around 12:30 GMT with US Retail Sales numbers.
- The US Dollar Index is in the middle of October’s range.
The US Dollar (USD) was the steady boyfriend on Monday in a market that had seen a wild ride in commodities. Foremost, the energy complex had a wild ride on a bunch of comments from Iran, Turkey and the US on the Israeli-Palestinian situation. The US Dollar remained steady despite the headlines and made equities soar.
On the data front, traders can sink their teeth into US Retail Sales, which are due this Tuesday an hour before the US stock market opens. As always, the print could produce a knee-jerk reaction as often the initial moves get contradicted by the revision of the previous number. In other words, brace yourself for some volatility either way.
Daily digest: US Dollar becoming data-driven
- At the start for this Tuesday, the President of the New York Fed, John Williams, is due to speak around 12:00 GMT.
- In terms of data, this Tuesday is kicking off near 12:30 GMT with the Retail Sales numbers: The monthly Retail Sales for September are expected to head lower from 0.6% to 0.3%. The Control Group number was previously at 0.1% with no expectation foreseen this time around. Retail Sales ex Autos is heading from 0.6% to 0.2%.
- At 12:55 GMT, the Redbook Index is due to come out for the week of October 13. Previous reading was 4%.
- Around 13:15 GMT, the monthly Industrial Production release for September is due. Expectations are for the print to head from 0.4% to 0%.
- Expect some headlines from Michelle Bowman, a governor on the Federal Reserve’s board, around 13:20 GMT.
- Another two numbers due to come out near 14:00 GMT: US Business Inventories for August, expected to head from 0.% to 0.3%. Additionally, the National Association of Home Builders (NAHB) is due to print the monthly Housing Market Index for October, which is expected to head from 45 to 44.
- Around 14:45 GMT, some headlines are expected from Thomas Barkin from the Federal Reserve Bank of Richmond.
- Equities are very much mixed with European and US equities on the back foot, while Asian equities advancenear 1%.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 90.1% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November.
- The benchmark 10-year US Treasury yield soared to 4.75% and is ticking up further as the bond sell-off continues.
US Dollar Index technical analysis: Awaiting to choose sides
The US Dollar looks to have reached the end of the line of its relentless rally since July. It comes as no surprise that the price action is cooling down and that the US Dollar Index (DXY) has retreated from its peak. With the DXY in the middle of this month’s range, the outcome will depend on three things: the rate differential of US yields against other currencies, the risk sentiment driven by geopolitical headlines and Powell’s speech on Thursday.
A bounce above the daily trendline from July 18 might still materialize. On the topside, 107.19 is important to reach. If this is the case, 109.30 is the next level to watch.
On the downside, the recent resistance at 105.88 did not do a good job supporting any downturn. Instead, look for 105.12 to keep the DXY above 105.00. If that does not do the trick, 104.33 will be the best level to look for some resurgence in US Dollar strength with the 55-day Simple Moving Average (SMA) as a support level.
US Dollar FAQs
What is the US Dollar?
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
How do the decisions of the Federal Reserve impact the US Dollar?
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
What is Quantitative Easing and how does it influence the US Dollar?
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
What is Quantitative Tightening and how does it influence the US Dollar?
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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