close
close
migores1

The US dollar sideways as markets prepare for four Fed speakers on Monday

  • The US dollar is settling on Monday, although still at elevated levels near last week’s high.
  • Tensions in the Middle East continue to linger as traders prepare for the release of the Fed minutes and US CPI later this week.
  • The US Dollar Index is trading above 102.00 and traders are concerned about whether to send the DXY towards 103.00.

The US dollar (USD) is flat on the sidelines on Monday, with the US Dollar Index (DXY), which tracks the greenback against six major currencies, hovering around 102.50. As traders prepare for the US Federal Reserve (Fed) and US Consumer Price Index (CPI) minutes later this week, no fewer than four Fed speakers are lined up to guide markets to Monday’s rate decision in November.

The economic calendar is bright on Monday, with only the Consumer Credit Change for August on the register in terms of numbers. Later this week, Thursday’s US CPI will be the main driver for the US Dollar. Markets are still assessing whether the US economy is in for a soft landing, a Goldilocks scenario, or rather a recession outlook.

Daily Market Reasons: US Rejects Israel

  • There is no agreement or green light from US President Joe Biden on the question of Israel attacking Iranian oil fields. The Biden administration has not given a firm no, but on Friday, President Biden told Bloomberg that he would consider alternatives to hitting the oil fields.
  • The change in consumer credit for August is due at 19:00 GMT, with expectations to see a decline to $12 billion from $25.45 billion in July.
  • Four Fed speakers are lined up for Monday:
    • At 17:00 GMT, Federal Reserve Governor Michelle Bowman participates in a discussion on banking regulation at the Independent Bankers Association of Texas (IBAT) annual convention in San Antonio, Texas.
    • Near 17:50 GMT, Federal Reserve Bank of Minneapolis President Neel Kashkari participates in a Q&A and moderated discussion at the Bank Holding Company Association (BHCA) Fall Seminar in Edina, MN.
    • At 22:00 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic moderates a conversation about the business of professional spots as part of the Atlanta Fed’s Leading Voice series.
    • Closing the day on Monday at around 22:30 GMT, the President of the Federal Reserve Bank of St. Louis Alberto Musalem gives a speech on the US economy and monetary policy at a Money Marketeers event at New York University.
  • European markets are struggling on Monday, with stock indexes inching lower, while US futures are looking even slower, with bigger losses on the day, around 0.50% on average.
  • The CME Fedwatch tool shows a 93.1% chance of a 25 basis point (bps) interest rate cut at the Fed’s next meeting on November 7, while 6.9% is the price for no rate cut. Chances of a 50 bps rate cut have been completely eliminated now.
  • The benchmark US 10-year yield is trading at 3.99%, a 30-day high and flirting with a break above 4.00%.

US Dollar Index Technical Analysis: Moved Fast

The US Dollar Index (DXY) rose at a speed that instantly brings Usain Bolt to mind. With a 50bps rate cut completely out of the picture and the odds of no rate cut to begin with increasing, the pendulum may have swung a little too far and too fast. Expect the DXY set to ease a touch and look for support before the next directional move.

The psychological level of 103.00 is the first big number to approach on the upside. Above, the chart identifies 103.18 as the final level for this week. Once above, a very choppy area appears, with the 100-day simple moving average (SMA) at 103.34, the 200-day SMA at 103.76, and the 103.99-104.00 pivot levels in play.

On the downside, the 55-day SMA at 102.03 is the first line of defense, supported by the 102.00 round figure and the 101.90 pivot level as support to catch any bearish pressure and trigger a breakout. If that level fails, 100.62 also acts as support. Below, a test of the year-to-date low of 100.16 should occur before more declines. Finally, and this means giving up the high of 100.00, the July 14, 2023 low at 99.58 comes into play.

US Dollar Index: Daily Chart

US Dollar Index: Daily Chart

Frequently asked questions about US dollars

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 weighs on 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.

Related Articles

Back to top button