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- US Dollar turns flat for the week with Gaza ceasefire talks ongoing
US Dollar turns flat for the week with Gaza ceasefire talks ongoing
- The US Dollar retreats from its peak performance on Monday.
- Traders brace for no less than three Fed speakers this Wednesday.
- The US Dollar Index to snap below 104 in search of support.
The US Dollar (USD) is losing traction from its peak performance on Monday. The effects from the upbeat US Jobs Report and geopolitical tensions – with ceasefire talks evolving in the Gaza region – are starting to favor the Greenback. Hamas has laid out a plan for a 135-day truce in three stages which is now under discussion by all parties.
On the economic front, traders will be getting their hands on some mild data ahead. Nothing market moving is expected from the US Goods Trade Balance. Rather it is comments from the three US Federal Reserve (Fed) members who are due to speak later this Wednesday that could move the dial. These speakers are: Adriana Kruger, a member of the Board of Governors, who is speaking near 16:00 GMT, Thomas Barking from the Richmond Fed, near 17:30 and Michelle Bowman, who like Kruger is also a member of the Board of Governors. She is set to speak near 19:00 GMT.
Daily digest market movers: A light mid-week schedule
- At 12:00 GMT the weekly Mortgage Bankers Applications got released. Previous saw a contraction of 7.2% with this week an uprising of 3.7%.
- Around 13:30, the US Goods and Trade Balance numbers are expected:
- Goods and Services Trade Balance for December is expected to show a deficit of $62.2B versus $-63.2B deficit previously.
- The Goods Trade Balance was showing a $88.5 Billion deficit in the previous report with no forecast for the December number available.
- As mentioned a few paragraphs above, no less than three Fed speakers will be hitting the wires today, Fed’s Kruger, Barking and Bowman.
- Near 18:00 the US Treasury will allot the always important 10-year Note in the market.
- Equity markets are showing no signs of letting go of this bull run. Some very mild losses to report, but with most indices in the green across the board. Only the US Futures are lagging a bit at the start of this Wednesday.
- The CME Group’s FedWatch Tool is now looking at the March 20th meeting. Expectations for a pause are 78.5%, while 21.5% for a rate cut.
- The benchmark 10-year US Treasury Note trades near 4.09%, off the peak from Monday near 4.17%.
US Dollar Index Technical Analysis: Taking a breather
The US Dollar Index (DXY) is taking a breather, so it seems, after its rally on Friday and Monday. The Greenback looks to be on its way to being proclaimed King Dollar again, although no real calls are put out there that DXY could pop back to 107. For now the equilibrium looks to be found with the DXY retreating a touch in search of support.
Should the US Dollar Index move higher again, first look for a test at the peak of Monday, near 104.60. That level needs to be broken and is more important than the 100-day SImple Moving Average snap at 104.30. Once broken above that Monday high, the road is open for a jump to 105 with 105.12 as key level to keep an eye on.
The 100-day SMA is clearly the unreliable boyfriend in the rally at the moment. A false break on Monday and no support provided on Tuesday from the moving average opens the door for a bit of a squeeze lower. The first ideal candidate for support is the 200-day SMA near 103.59. Should that give way, look for support from the 55-day SMA near 103 itself.
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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