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- US Dollar sinks back below 104 with US markets closed for Thanksgiving
US Dollar sinks back below 104 with US markets closed for Thanksgiving
- The Greenback is unable to hold on to gains ahead of this week’s close.
- US Traders are absent this Thursday as Thanksgiving and Black Friday will keep US trading desks closed.
- The US Dollar Index breaks below 104 again and is facing a loss for this Thursday and for this week’s performance overall.
The US Dollar (USD) is not on US trader’s minds for once as they are off this Thursday enjoying Thanksgiving. Although the Greenback held good cards on Wednesday to erase this week's losses, it saw a near complete reversal in the last trading hour before going into the US bank holiday. With no US trading, Asian and European markets are sending the US Dollar Index (DXY) lower and a weekly loss looks nearly inevitable.
Today sees a very light calendar with no US data to be published. From the European front the Purchase Managers Index (PMI) numbers were already issued ahead of the US PMI numbers for Friday. Although the European numbers are still in contraction, below 50, they are soaring against the previous from October. Should Friday’s US PMI numbers decline, the shift in dynamics between European and US PMI’s could see the Greenback declining further.
Daily digest: Thanksgiving quietness
- European purchasing manager indices numbers are showing an uptick from earlier lower levels in October, with an uptick in November in the preliminary readings.
- The ceasefire deal in Gaza has been delayed by a day, and should take place on Friday.
- A car explosion on the border between Canada and the US was deemed an accident with no terrorist motive at hand.
- The Chinese support and funding issued on Wednesday, made the Chinese property sector jump nearly 7%.
- ECB member Joachim Nagel said in early morning comments that the European Central Bank (ECB) is unsure if it has actually reached its peak rates. Rates must stay higher for longer as inflation might resurge quickly in the coming months.
- Equities are mildly in the green on this US holiday. The Chinese Hang Seng is worth mentioning, up 1% near its closing bell. European equities are looking for direction while US equity futures are marginally higher in their half-day-trading regime due to the US holiday.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 97.8% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December. A juicy sidenote is that now 2.2% even thinks a hike might be at hand.
- The benchmark 10-year US Treasury Note yield halted trading at 4.40% and will not move this Thursday with markets closed.
US Dollar Index technical analysis: Imbalance and no counterweight
The US Dollar is trading weaker and has erased all its gains from Wednesday. The losses are big enough to tip the US Dollar Index (DXY) into the red this week. With this Thursday’s uptick in European PMI numbers and the US trading desks closed, a window of opportunity could open for another substantial weakening of the US Dollar this Thursday.
The DXY is right at the 200-day SMA near 103.62, and will need to have a daily close above it in order to reassure that the same 200-day SMA is valid as support. Look for a further recovery bounce towards the 100-day SMA near 104.20 with preferably a break and close above. Should the DXY be able to close and open above it later this week, look for a return to the 55-day SMA near 105.71 with 105.12 ahead of it as resistance into next week.
The 200-day SMA will try to play its role again as a crucial pivotal supportive level against any downturn. Should the index snap this level again, the psychological 100.00 level comes into play. With a very slim economic calendar and US trading desks closed, there is room for a potential big downturn.
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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