- Analytics
- News and Tools
- Market News
- US Dollar sell-off halts amid holiday season
US Dollar sell-off halts amid holiday season
- The US Dollar is in a standoff between bears and bulls.
- Equity markets trade flat with US futures hesitant to continue the Christmas rally.
- The DXY US Dollar Index trades near 101 and a breach could see an accelerated nosedive.
The US Dollar (USD) is hanging over an abyss of substantial downturn since its weak performance ahead of Christmas. On the US Dollar Index (DXY) chart, a broad area is open for a quick decline in the Greenback’s value. With a lot of trading desks running on half power and most companies closed for the holiday season, thin liquidity could either salvage the situation or make it even worse for the Greenback.
On the economic front, some light data lie ahead with the Richmond Fed Manufacturing Index. Market reaction to the numbers should be fairly muted. The main driver will rather be the risk factor – with equities either advancing or correcting into year-end.
Daily digest Market Movers: Mild calendar ahead
- Richmond Fed Manufacturing Index for December is due near 15:00. Previous was at -5, with -7 expected for this month.
- The US Treasury will have some people coming into the office to allocate a 5-year Note in the market near 18:00 GMT.
- Equities are very geographically divided this Wednesday: Asian equities are jumping higher and are booking over 1% gains in Japan and Chinas’ major indices. European equities look rather reluctant to take over the positive vibe out of Asia and are mildly in the green by less than 0.5%. US futures are all trading marginally in the red.
- The CME Group’s FedWatch Tool shows that markets are pricing in an 85.5% chance that the Federal Reserve will keep interest rates unchanged at its January 31 meeting. Around 14.5% expect the first cut already to take place.
- The benchmark 10-year US Treasury Note trades near 3.86%, the lowest level since summer.
US Dollar Index Technical Analysis: Flip a coin
The US Dollar Index looks incapable of recovering soon from the current downturn since November. Traders should be warned that these days between Christmas and New Year usually exhibit thin liquidity and a low number of market participants being present in the markets. Should the US Dollar be able to hold the current position in the DXY, some recovery could be at hand once traders come back in January.
First upside resistance to face is near 101.78 at the low of December 21st. Although a long way to go, it looks not unthinkable that the DXY might test the descending trend line near 103.00. Depending on the catalyst that fuels the recovery in the Greenback, the 200-day Simple Moving Average (SMA) near 103.45 is firm last resistance before having more upside.
To the downside, the pivotal level at 101.70 – the low of August 4 and 10 – is vital to hold and could still see a close this week. Once broken, look for 100.82, which aligns with the bottoms from February and April. Should that level snap, nothing will stand in the way of DXY heading to the sub-100 region.
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.
© 2000-2024. All rights reserved.
This site is managed by Teletrade D.J. LLC 2351 LLC 2022 (Euro House, Richmond Hill Road, Kingstown, VC0100, St. Vincent and the Grenadines).
The information on this website is for informational purposes only and does not constitute any investment advice.
The company does not serve or provide services to customers who are residents of the US, Canada, Iran, The Democratic People's Republic of Korea, Yemen and FATF blacklisted countries.
Making transactions on financial markets with marginal financial instruments opens up wide possibilities and allows investors who are willing to take risks to earn high profits, carrying a potentially high risk of losses at the same time. Therefore you should responsibly approach the issue of choosing the appropriate investment strategy, taking the available resources into account, before starting trading.
Use of the information: full or partial use of materials from this website must always be referenced to TeleTrade as the source of information. Use of the materials on the Internet must be accompanied by a hyperlink to teletrade.org. Automatic import of materials and information from this website is prohibited.
Please contact our PR department if you have any questions or need assistance at pr@teletrade.global.
Bank transfers
