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- US Dollar gains haven bid after Netanyahu rejects Hamas ceasefire proposal
US Dollar gains haven bid after Netanyahu rejects Hamas ceasefire proposal
- The US Dollar prints small gains against most major G20 peers.
- Traders are getting ready for the weekly US Jobless Claims.
- The US Dollar Index pops back above 104 in a very calm market for now.
The US Dollar (USD) is back in the green after a stalemate session on Wednesday. Initially hopes of a ceasefire breakthrough between Israel and Hamas made the safety-linked US Dollar retreat a touch. After Israel’s Prime Minister Benjamin Netanyahu came out late Wednesday evening with a statement rejecting the plan, however, the USD gained a bid. According to Netanyahu the complete destruction of Hamas would only take a few more months anyway.
On the economic front, traders are getting ready for the weekly US Jobless Claims. The Wholesale Inventories are due as well later this Thursday, though expect not much movement in the Greenback on the back of that.
Traders looking for a longer term trade or strategy, or analysts that want to better assess the longer term inflation risks might consider taking a look at the US crop report: The United States Department of Agriculture (USDA) releases every month the World Agricultural Supply and Demand Estimates report (WASDE) where insights are given on supply, demand, bad harvests on all sorts of crops, and thus on possible weak spots that might attribute to the food inflation basket.
Daily digest market movers: At a drift
- This Thursday Nevada and the Virgin Islands are up for Republican Caucus elections. Another landslide victory for former US President Donald Trump would almost guarantee him the nomination as Republican Presidential Candidate for the November elections.
- At 13:30 GMT the weekly US Jobless Claims are due to be released. Expectations are for a decline in the numbers after the strong upbeat US Jobs report from past Friday.
- Initial Jobless Claims are expected to head from 224,000 to 220,000.
- Continuing Jobless Claims are seen heading from 1,898 million to 1,878 million.
- Wholesale Inventories for December are expected to stay steady near 0.4%.
- At 16:30, a 4-week Note will be auctioned by the US Treasury Department.
- Richmond’s Federal Reserve President Thomas Barkin is due to speak at 17:05. A 30-year bond auction will take place around 18:00.
- Around 17:00, the United States Department of Agriculture (USDA) will release its monthly World Agricultural Supply and Demand Estimates report (WASDE).
- Equity markets are mixed this Thursday. Japanese indices have closed off this Thursday in the green with the Nikkeai up over 2%. Quite a different picture in China where the Hang Seng is down 1.3%. European equities are looking for direction while US equity futures are rather flat.
- The CME Group’s FedWatch Tool is now looking at the March 20th meeting. Expectations for a pause are 81.5%, while 18.5% for a rate cut.
- The benchmark 10-year US Treasury Note trades near 4.12%,and trades in the middle of this week’s range.
US Dollar Index Technical Analysis: Steady awaiting confirmation
The US Dollar Index (DXY) is slowly but surely advancing higher again with markets digesting the failed ceasefire plan that was put on the table by Hamas. The harsh rhetoric from Prime Minister Benjamin Netanyahu could mean some lingering US Dollar strength in the coming weeks. Meanwhile markets will be looking for next Republican state Caucus elections, which could lock in Trump as a favorite for November.
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 105.00 with 105.12 as key levels to keep an eye on.
The 100-day SMA (104.29) 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 103.60. Should that give way, look for support from the 55-day SMA near 103.00 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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