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- US Dollar down for a third day in a row as Biden visits Israel
US Dollar down for a third day in a row as Biden visits Israel
- The Greenback heads lower for a third day in a row.
- It’s all about the housing market this Wednesday on the macro front.
- The US Dollar Index is undergoing a squeeze to the downside.
The US Dollar (USD) is being torn in two camps this week. On the one hand, traders appreciate the Greenback as the situation in the Middle-East grows less certain. On the other hand, the local macroeconomic numbers are starting to lose their shine and point to the possible start of a recession for the US. Either way, the US Dollar itself is moving in tight ranges and is heading lower on the US Dollar Index (DXY) for a third day in a row.
On the data front, traders can get their hands dirty on some housing data: the Building Permits and Housing Starts are due on Wednesday. Do not expect market moving triggers but rather confirmation if the recent weakness in the US Dollar is granted. The USD might even see a little continuation of that momentum. Additionally, three US Federal Reserve speakers are set to shed light on the US monetary stance.
Daily digest: US Dollar sees two camps
- Biden has landed in Tel Aviv, Israel, at the start of the European trading session. Markets will be on the lookout for any supportive language from US President Joe Biden in terms of military support or actions. Meanwhile, more and more headlines emerge on who bombed the Palestinian hospital that killed hundreds of civilians.
- At 11:00 GMT, the Mortgage Bankers Association has issued the weekly Mortgage Applications for last week. Previous print was at 0.6% and got revised to 0%.
- At 12:30 GMT, a slew of data gets released: the Building Permits are expected to decline by a touch from 1.543 million to 1.45 million for September. Housing Starts are foreseen to pick up from 1.283 million to 1.38 million.
- Two Fed speakers speak at 16:00 GMT: Fed Board Member Christopher Waller and the New York Fed’s John Williams are taking the stage. Not much later, near 17:00 GMT, Fed Governor Michelle Bowman will speak as well.
- The Fed’s Beige Book will be issued at 18:00 GMT.
- To close off the day, expect to see some comments from Fed Governor Lisa Cook.
- Equities do not seem to care and are flat with minor losses or gains across the board. No real outliers to report as the US earnings season picks up speed.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 90% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November.
- The benchmark 10-year US Treasury yield rises to 4.84% as the bond market sell-off continues again this Wednesday.
US Dollar Index technical analysis: Which camp will win?
The US Dollar is undergoing some moshpit action with both Dollar bulls and bears fighting over which direction the US Dollar Index (DXY) needs to go. On one hand, the US Dollar starts to see both macroeconomic numbers and equity earnings coming in positive, though retreating from previous elevated levels. Meanwhile, the fighting in Gaza might trigger ample US Dollar strength as a safe haven. For now, as long as a proxy war does not emerge, the Greenback is set to retreat little by little.
A bounce above the daily trendline from July 18 might still materialise although that is starting to slip further away. 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 fails to do the trick, 104.33 will be the best level to look for 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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