The US dollar sees traders fleeing the greenback with China’s stimulus triggering the exodus

• The US dollar is under pressure as investors relocate investments.
• Recession fears are re-emerging for the US after a batch of weak economic data.
• The US dollar index is flirting with a new 15-month low and could fall below 100.00 if more selling pressure emerges.

The US dollar (USD) is trading steady in the first European session on Wednesday after easing against most major Asian currencies such as the Chinese yuan (CNY) or the Indian rupee (INR) overnight. The reshuffle comes as investors shift their investments from the US into Chinese stocks. The move is triggered by a massive Chinese government stimulus plan that was implemented on Tuesday.

In terms of economic data, a very light calendar follows with no real market movement data on Wednesday. One element that may attract attention is the comments of Federal Reserve (Fed) Governor Adriana Kugler, who is giving a speech on the US economic outlook at the Harvard Kennedy School in Cambridge, Massachusetts. From there, markets will be on the lookout for the Q2 US Gross Domestic Product (GDP) release, with Fed Chairman Jerome Powell scheduled to speak on Thursday.

Daily Market Reasons: Expect some calm

• “Sentiment is kicking in Asian markets after China announced a slew of policy stimulus,” dampened demand for the dollar, said Wei Liang Chang, currency and credit strategist at DBS Bank in Singapore, Bloomberg reports.
• At 11:00 GMT, the Mortgage Bankers Association (MBA) released its weekly index of mortgage loan applications. There was an 11.0% increase in claims compared to 14.2% last week.
• On the mortgage front, New Home Sales are due at 14:00 GMT. Expectations are for a softer number at 0.700 million units in August from 0.739 million previously.
• The US Treasury will issue a 5-year note around 17:00 GMT.
• At 20:00 GMT, Federal Reserve Governor Adriana Kugler delivers a speech on the US economic outlook at the Harvard Kennedy School in Cambridge, Massachusetts.
• All equity markets are in the red, except for Chinese stocks which are recovering for the next day, supported by Chinese stimulus measures.
• The CME Fedwatch tool shows a 41.6% chance of a 25 basis point rate cut at the next Fed meeting on November 7, while 58.4% is the price for another 50 basis point rate cut. basis.
• The benchmark US 10-year yield is trading at 3.73%, retreating from an earlier attempt to print a new monthly high.

US Dollar Index Technical Analysis: There is a catch-up with reality

The US dollar index (DXY) is flirting with a fresh 15-month low after Tuesday’s data and stimulus from China triggered a further devaluation of the greenback. Going forward, rather the main data on Thursday and Friday will act as catalysts that could move the DXY. Watch out for Q2 US gross domestic product (GDP), which could trigger recession fears if it declines.

The high of the September range remains at 101.90. Above, the index could reach 103.18, with the 55-day simple moving average (SMA) at 102.42 along the way. The next upside leg is very cloudy, with the 100-day SMA at 103.61 and the 200-day SMA at 103.76, just ahead of the high round of 104.00.

On the downside, 100.22 (September 18 low) is the first support, and a break could indicate more weakness ahead. Should it occur, the July 14, 2023 low at 99.58 will be the next level to watch. If this level breaks, early 2023 levels approach 97.73.

US Dollar Index: Daily Chart