The US dollar hit a seven-month low earlier in the Jackson Hole week

VaselineAugust 19, 2024

0 5 minutes read

The US dollar hit a seven-month low earlier in the Jackson Hole week

The US dollar is trading substantially lighter, hitting a seven-month low earlier in the week.
The greenback continues to post losses after Friday’s turmoil.
The US dollar index is trading on the verge of entering the 101 region and could face more downside.

The US dollar (USD) is trading substantially weaker this month, hitting its lowest level since mid-January, mainly driven by a more than 1% appreciation in the Japanese yen (JPY) against the greenback. . The Commodity Futures Trading Commission (CFTC) reported on Friday that hedge funds are net long the Japanese yen, and Asian and European investors appear to be following suit on Monday. . With the Japanese yen accounting for 13.6% of the U.S. dollar index ( DXY ), the rise weighed on the index’s performance on Monday, pushing it to lows not seen in about seven months.

On the economic data front, a fairly weak start to this week’s data, where all eyes will be on Wyoming later in the week for the US Federal Reserve’s annual Jackson Hole Symposium. The event will feature the crème-de-la-crème of central bankers, including Fed Chairman Jerome Powell, and is known for being an opportunity for the Fed to signal a change in monetary policy outside of scheduled meetings. In the run-up to this event, more headlines from other central bankers will emerge, and Thursday’s US purchasing managers’ index (PMI) data will provide the latest information on the state of the economy.

Daily Market Reasons: Fast Forward?

The Commodity Futures Trading Commission (CFTC) issued its weekly holdings of speculative and non-speculative positions in the currency futures markets on Friday. The report revealed that hedge funds are net long JPY for the first time since 2021.
This week begins with comments from Federal Reserve Governor Christopher Waller, who delivers welcome remarks at the 2024 Summer Workshop on Money, Banks, Payments and Finance in Washington, DC at 13:15 GMT.
The US Treasury allocates a short-term 3-month and 6-month note at 15:30 GMT.
Asian stock markets are mixed, with Chinese indexes up nearly 1 percent, while Japanese shares are down more than 1 percent. European stocks are also looking for direction, while US futures are trading flat.
The CME Fedwatch tool shows a 72% chance of a 25 basis point (bps) interest rate cut by the Fed in September, compared to a 28% chance of a 50 basis point cut. Another 25 bps cut (if September is a 25 bps cut) is expected in November by 53.7%, while there is a 39.2% chance that rates will be 75 bps below current levels and a likelihood of 7.1% for rates to be 100 basis points lower. .
The benchmark US 10-year yield is trading at 3.87% and looking for direction after last week’s decline.

Economic indicator

Fed Chairman Powell’s speech

Jerome H. Powell assumed office as a member of the Board of Governors of the Federal Reserve System on May 25, 2012, to serve an unexpired term. On November 2, 2017, President Donald Trump nominated Powell to be the next chairman of the Federal Reserve. Powell assumed the position of president on February 5, 2018.

US Dollar Index Technical Analysis: Who Did What Now?

The US Dollar Index (DXY) looks very gloomy and the chances of a recovery seem low. With this new information from the CFTC, traders have to wonder where they see DXY headed, given that hedge funds will not pile into a coin based on weak faith.

Hedge funds are always in it to hold their positions until their earnings projection is met. Seeing as this is just the beginning, and with more and more hedge funds and traders able to join this trade, the US dollar could be set to flow even further. This could mean more disadvantages, and then that level 100 could come sooner than expected.

Defining pivot levels becomes very important to avoid any “dead cat jumps”, where traders pile into a trade too quickly and get caught on the wrong side of the fence once the course reverses. The first rise is 103.18, a level that traders could not hold last week. Next, a strong resistance level is at 103.99-104.00, and inches above is the 200-day Simple Moving Average (SMA) at 104.07.

On the downside, the first immediate support appears at the 101.90 level if prices break below 102.00. Highs not seen since early January are emerging and even a new yearly low could come into play once DXY breaks below 101.30 (January 2nd low). The December 28 low at 100.62 will be the ultimate level to watch.

US Dollar Index: Daily Chart

US Dollar FAQ

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 banknotes. It is the world’s most heavily traded currency, accounting for more than 88% of total global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, as of 2022. After World War II world, the USD has taken 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 disappeared.

The most important factor influencing the value of the US dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to ensure price stability (inflation control) and to promote full employment. Its main tool for achieving these two objectives is the adjustment of interest rates. When prices rise too fast and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the value of the USD. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which affects interest rates.

In extreme situations, the Federal Reserve can also print more dollars and engage in 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 (for fear of default). It is a last resort when simply lowering interest rates is unlikely to achieve the desired result. It was the Fed’s preferred weapon to combat the credit crunch that occurred during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using them to buy US government bonds, mainly from financial institutions . QE usually leads to a weaker 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 of maturing bonds it holds in new purchases. It is usually positive for the US dollar.

VaselineAugust 19, 2024

0 5 minutes read