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- US Dollar records mild gains as DXY jumps above 20-day SMA after soft ADP figures
US Dollar records mild gains as DXY jumps above 20-day SMA after soft ADP figures
- The DXY Index is witnessing mild gains, posing a threat to the 20-day SMA near 104.00.
- ADP Employment Change for November came in lower than expected; Unit Labor Costs were revised lower.
- US yields are declining, limiting the upside for the USD.
The US Dollar Index (DXY) is steadily rising, trading at 104.00 and treading close to the 20-day SMA despite softer Automatic Data Processing (ADP) jobs figures and consolidating its weekly gains. The focus is still on the Nonfarm Payrolls report, as investors will get a clearer picture of the labor market to continue placing their bets on the next Federal Reserve (Fed) decisions.
Mixed labor market data and cooling inflation signal a potentially dovish stance by the Fed, yet officials are not ruling out further tightening. This conjecture suggests a cautious but flexible approach to their monetary policy, so the incoming data is closely watched. Upcoming labor market data on Friday will play an integral role in shaping expectations for the Fed's decisions, which could have an impact on US Dollar price dynamics.
Daily Market Movers: US Dollar holds its ground despite soft labor market figures
- The US Dollar is trading with gains, pushing above the 20-day SMA at 104.00.
- The Unit Labour Costs for Q3 was revised to -1.2%, while November's ADP Employment Change came in lower than expected at 103K, falling short of the 130K estimate.
- Investors await key economic reports due on Friday. Nonfarm Payrolls,Unemployment Rate and Average Hourly Earnings for November will be closely monitored.
- US bond yields are declining. The 2, 5, and 10-year bonds are seen at 4.59%, 4.11%, and 4.11%, respectively, limiting the upward strength of the USD.
- Market expectations are leaning toward a no-hike decision at the December Fed meeting while also projecting potential rate cuts by mid-2024, according to the CME FedWatch Tool.
Technical Analysis: US Dollar shows bullish resilience and pushes above the 20-day SMA
The Relative Strength Index (RSI) shows a favorable bias, existing with a positive slope despite being in negative territory. This buying momentum is bolstered further by the Moving Average Convergence Divergence (MACD), which exhibits rising green bars.
That being said, the index has yet to consolidate above the 20-day Simple Moving Average (SMA) and resides below the 100-day Simple Moving Average (SMA), indicating strong selling forces are at play. However, the bulls dominate the broader time horizon as the asset operates above the 200-day SMA.
Support levels: 104.00 (20-day SMA),103.60, 103.30, 103.15
Resistance levels: 104.10, 104.40 (100-day SMA), 104.50.
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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