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- US Dollar eats into its gains on calm Friday
US Dollar eats into its gains on calm Friday
- The US Dollar not breaking any pots this Friday with minor moves in either direction.
- Traders are taking some profit from the Greenback rally earlier this week with an empty calendar ahead.
- The US Dollar Index fails to close above the 100-day SMA and could slide back below 104.
The US Dollar (USD) is steady to lower this Friday with nothing really to report in markets. All eyes are rather on headlines in the papers with the landslide victory of former US President Donald Trump in both Nevada and the Virgin Islands, giving him a comfortable lead already early in the Primaries. The second big topic is the interview of former Fox news reporter Tucker Carlson with Russian President Vladimir Putin where the broad strokes are that Putin is not interested in invading the West, only Ukraine.
On the economic front, a blank sheet with no economic data to report. Though one US Federal Reserve Speaker is due to make an appearance after the European Closing Bell. Lorie Logan from the Dallas Fed is set to speak around 18:30 GMT.
Daily digest market movers: No news, no moves
- Germany's final inflation reading for January saw yearly Headline inflation closing off at 2.9%.
- Martin Kazaks from the European Central Bank Council said that rate cuts will be taking place this year for the ECB. It is just a matter of when the data is confirming the right time.
- The Senate is advancing with the aid for Ukraine and Israel, detaching the US Border Deal from the bill.
- Equity markets are dragging their feet towards the end of this week. Although several indices are residing near all-time highs, some fatigue is showing, and some profit taking might creep in towards this week’s closing bell.
- The CME Group’s FedWatch Tool is now looking at the March 20th meeting. Expectations for a pause are 84.5%, while 15.5% for a rate cut.
- The benchmark 10-year US Treasury Note trades near 4.17%, though the jump in the yield from the lower 4.06% earlier this week is not reflected in the US Dollar.
US Dollar Index Technical Analysis: Some fatigue
The US Dollar Index (DXY) is showing fatigue after the cost of finally moving away from the 200-day Simple Moving Average (SMA) near 103.61. Ideally a close above the 100-day SMA at 104.27 would have set forth the Greenback for more gains into next week, though US Dollar bulls are not supporting that plan. Instead, a week of false breaks took place and could mean that the DXY now falls back to the 200-day SMA for 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 104.28. 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 (104.28) 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 103.61. Should that give way, look for support from the 55-day SMA near 103.02 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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