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- US Dollar got tackled by Fed’s Waller ahead of US GDP
US Dollar got tackled by Fed’s Waller ahead of US GDP
- The Greenback trades flat on Wednesday morning as US Dollar bulls are licking their wounds.
- US traders can let the dust settle over surprise dovish comments and look forward to US GDP.
- The US Dollar Index is trading in the 102-area and the RSI is getting oversold.
The US Dollar (USD) bulls are probably not a fan of the US Federal Reserve anymore, or at least not one of its members. US Federal Reserve Christopher Waller from the board of governors, surprised markets with a very dovish statement on Tuesday, which in its turn made US yields plunge and promptly devalued the Greenback. The US Dollar lost steam in Asia trading this Wednesday morning, though it looks to be trying to get a grip as it is off the lows for now.
On the economic front the calendar is picking up in weight as this Wednesday the US Gross Domestic Product is due to be released. The third quarter preliminary reading might give some counterweight against the recent downturn in the Greenback and could convince traders that the US economy as such is still growing at a solid pace against most of its competitors. Some readjustment might be granted as the US Dollar may have been a bit over punished in the drop on Tuesday.
Daily digest: US GDP heavyweight
- Around 12:00 GMT this Wednesday will kick off with the Mortgage Bankers Association issuing its Mortgage Applications for the week of November 24th. Previous number was 3%.
- At 13:30 GMT a chunky batch of data will be released:
- The Gross Domestic Product on an annualised basis for the third quarter will be released: Previous result was 4.9% with expectations for the third quarter at 5%.
- The Gross Domestic Product Price Index for the third quarter will come out as well: Previous was at 3.5% and an unchanged 3.5% is expected.
- Quarterly Personal Consumption Expenditures Prices are to be released as well. The previous number was at 2.9% with no forecast pencilled in.
- Wholesale Inventories for October are to be released in all the noise of the US GDP, and is expected to head from 0.2% to 0.1%.
- The Fed’s beige book is expected to be issued near 19:00 GMT.
- Asian equities are not buying into the dovish comments from the Fed and are continuing their sell-off with the Hong Kong Hang Seng leading the descent; being down over 2%. European and US equities are mildly in the green.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 98.7% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December. A very slim chance of a cut is now showing.
- The benchmark 10-year US Treasury Note trades at 4.29%, another substantial leg lower after the comments from Christopher Waller from the Fed.
US Dollar Index technical analysis: Gone far enough for now
The US Dollar has added another leg to its losses, making it a three day losing streak thus far. Though, some small relief could be on the horizon as US GDP numbers later this Wednesday might help to at least recoup a bit of earlier losses. Add into that reasoning the Relative Strength Index (RSI) on the daily DXY chart which is breaking into “oversold”, and some relief looks granted in this descent.
The DXY is sliding further below the 200-day Simple Moving Average (SMA), which is near 103.60. The DXY could still make it back up there, should US traders come back in the market and start buying the current dip. A two-tiered pattern of a daily close and next an opening higher would quickly see the DXY back above 104.28, with the 200-day and 100-day SMA turned over to support levels.
To the downside, historic levels from August are coming into play, when the Greenback summer rally took place. The lows of June make sense to look for some support, near 101.92, just below 102. Should more events take place that initiate further declines in US rates, expect to see possible even a near full unwind of the 2023 summer rally, heading to 100.82, followed by 100.00 and 99.41.
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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