The US Dollar (USD) is in a very mixed tone at the start of this week, with a very small pattern to draw as conclusion from its performance against most major currencies. The US Dollar trades at key peak levels against the Australian Dollar and the Chinese Yuan, both very much dependent on one another because Australia is the biggest supplier to China in terms of commodities. On most other fronts, the US Dollar is retracing a bit, coming off its peak performance of last week, making the US Dollar Index (DXY) very mixed and trading rather sideways at the moment.
This week traders will not be able to already start planning for their summer holidays as a few big events are set to take place. Big attention for the European equivalent of the US Federal Reserve’s Jackson Hole Symposium, as the European Central Bank (ECB) is organising its symposium in Syntra, Portugal. US Fed Chairman Jerome Powell will deliver two speeches on that event on Wednesday and Thursday, while markets can feast on data points like the Durable Goods on Tuesday at 12:30 GMT, the final estimate of the US Gross Domestic Product (GDP) on Thursday at 12:30 GMT and the Personal Consumption Expenditure (PCE) Price Index at 12:30 GMT on Friday.
The US Dollar is advancing this Monday against the Australian Dollar and the Chinese Yuan while on other fronts the Greenback is pairing back some of its gains from last week. The reason for this could be seen as that Australia is very dependent on the demand from China toward commodities and the lacklustre reopening story from China is hurting the Australian economy, making investors and traders short both currencies. This makes the US Dollar Index (DXY) very mixed as only two notable weak underperformers stand over a bulk of stronger currencies, making the DXY trading sideways to lower.
On the upside, the 100-day Simple Moving Average (SMA) briefly touched at 103.06, remains as level to break above and hold. That attempt failed last week, and could demand more conviction from the Greenback in order to head and stay above that level. Once that happens, look for 103.50 as the next key level to the upside.
On the downside, the 55-day SMA near 102.60 should normally be back into support-mode. Though, it has been chopped up quite a bit last week, so it starts to lose its importance a bit. Rather keep in mind 102.50 and 102.00 as downside supports to look for.
The US Federal Reserve (Fed) has two mandates: maximum employment and price stability. The Fed uses interest rates as the primary tool to reach its goals but has to find the right balance. If the Fed is concerned about inflation, it tightens its policy by raising the interest rate to increase the cost of borrowing and encourage saving. In that scenario, the US Dollar (USD) is likely to gain value due to decreasing money supply. On the other hand, the Fed could decide to loosen its policy via rate cuts if it’s concerned about a rising unemployment rate due to a slowdown in economic activity. Lower interest rates are likely to lead to a growth in investment and allow companies to hire more people. In that case, the USD is expected to lose value.
The Fed also uses quantitative tightening (QT) or quantitative easing (QE) to adjust the size of its balance sheet and steer the economy in the desired direction. QE refers to the Fed buying assets, such as government bonds, in the open market to spur growth and QT is exactly the opposite. QE is widely seen as a USD-negative central bank policy action and vice versa.
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