US Dollar near yearly lows ahead of volatile Thursday

• The US Dollar bounces back into September’s range and holds near yearly lows on Thursday. 
• Besides a big slew of data, a bunch of Fed speakers are set to rock the US Dollar. 
• The US Dollar Index bounces off a 15-month low and is set to enter a rough patch with high volatility at hand. 

The US Dollar (USD) holds steady near yearly lows ahead of a very volatile day expected on Thursday. Besides a bulk data release, no less than eight  US Federal Reserve (Fed) policymakers are set to speak, including Fed Chairman Jerome Powell. Comments will be watched more than ever by market participants after Bloomberg reported on Wednesday that a bond trader took out 118,000 future contracts betting on a big interest rate cut in the Fed’s next meeting in November, the largest size traded on record ever. 

On the economic data front, a bulk release will unfold at 12:30 GMT. Besides the weekly Jobless Claims, the August Durable Goods Orders and the third reading of the US Gross Domestic Product (GDP) for the second quarter will be released at the same time, and volatility is bound to pick up once the data comes out. 

Daily digest market movers: Here comes the storm 

• Bloomberg reported on Wednesday that a bond trader had bought 118,000 SOFR or Fed futures, betting on a 50 basis point rate cut in November. The amount was the largest on record to be traded in one trade and for a single position. 
• The Chinese government is adding more stimulus to markets, this time via a capital injection of 1 trillion Yuan (CNY) into several of its major banks. 
• At 12:30 GMT, the main part of the economic data for this Thursday will be released:
  • Weekly Jobless Claims:
    • Initial Claims are expected to rise to 225,000 in the week ending September 20, coming from 219,000 the previous week. 
    • Continuing Claims for the week ending September 13 have no forecast available and were at 1.829 million the previous week.
  • August US Durable Goods Orders:
    • Headline Durable Goods is expected to shrink by 2.6% after the surge of 9.8% in July.
    • Durable Goods, excluding cars and transportation, are expected to tick up by 0.1% against the small decline of 0.2% in July.
    • As always, the revisions for prior data might be more market-moving than the actual numbers. 
  • Third reading of the US GDP for the second quarter:
    • Headline GDP is expected to come in unchanged at 3%.
    • Personal Consumption Expenditures (PCE) Prices should remain stable at 2.5% quarter-on-quarter (QoQ).
    • Core PCE is not expected to move away from the 2.8% QoQ of the previous reading.
• The Kansas Fed Manufacturing Activity Index for September will be released at 15:00 GMT. The expectation is for an increase to 9, coming from 6 in August. 
• At 13:10 GMT, Fed policymakers will make their way to the stages:
  • At 13:10 GMT, Federal Reserve Bank of Boston President Susan Collins participates in a virtual fireside chat with Fed Governor Adriana Kugler about bank supervision and financial inclusion at a workshop organized by the Federal Reserve Banks of Boston and Minneapolis.
  • Around the same time Federal Reserve Governor Michelle Bowman delivers a speech about the US economic outlook and monetary policy at a workshop organized by the Mid-size Bank Coalition of America Board of Directors.
  • At 13:20 GMT, Federal Reserve Chairman Jerome Powell delivers pre-recorded opening remarks at the 2024 US Treasury Market Conference in New York, followed by comments by Federal Reserve Bank of New York President John Williams.
  • At 14:30 GMT, Federal Reserve Vice Chair for Supervision Michael Barr delivers remarks at the 2024 US Treasury Market Conference in New York, while Federal Reserve Governor Lisa Cook participates in a roundtable discussion about artificial intelligence and the development of the workforce at an event hosted by the Federal Reserve Bank of Cleveland and Columbus State Community College in Ohio. 
  • At 17:00 GMT, expect comments from Fed Reserve Vice Chair for Supervision Michael Barr, who participates in a virtual fireside chat about financial inclusion with Minneapolis Fed President Neel Kashkari at the Boston Fed's Financial Inclusion and Banking Supervision Workshop.
• Asian equity markets are rallying higher, led by China, after additional capital injections for the banks. European equities are lagging a touch while US futures are aligned with the Asian rally. 
• The CME Fedwatch Tool shows a 39.5% chance of a 25 basis-point rate cut at the next Fed meeting on November 7, while 60.5% is pricing in another 50-basis-point rate cut. 
• The US 10-year benchmark rate trades at 3.78%, looking to test the three-week high at 3.81%

US Dollar Index Technical Analysis: Data-driven and Fed-driven

The US Dollar Index (DXY) is either set to be thrown left and right on Thursday or could cover a lot of ground in one direction. The first scenario would play out if economic data misses expectations and does not align with all the comments from the Fed speakers. In case all data falls in line with expecctations, and Fed speakers even use recent data to build up their view or outlook, expect to see a potential nosedive or rally in the DXY. 

The upper level of the September range remains at 101.90. Further up, the index could go to 103.18, with the 55-day Simple Moving Average (SMA) at 102.36 along the way. The next tranche up is very misty, with the 100-day SMA at 103.57 and the 200-day SMA at 103.76, just ahead of the big 104.00 round level. 

On the downside, 100.22 (the September 18 low) is the first support, and a break could point to more weakness ahead.  Should that take place, the low from July 14, 2023, at 99.58, will be the next level to look out for. If that level gives way, early levels from 2023 are coming in near 97.73.