- The US Dollar is retreating even further as US Durable Goods disappoint.
- Next focus is on US Consumer Confidence data that could at least try to provide some relief for the much battered Greenback today.
- The US Dollar Index is in the red and ekes out more losses.
The US Dollar (USD) is unable to provide an answer against the surprise fixing from the PBoC in the Yuan this morning and just now the disappointing US Durable Goods revisions. This triggered a wave of pressure on the Greenback, particularly against the Canadian Dollar as the USD/CAD pair trades at 1.3125, a six-month low. Polish Zloty, Japanese Yen, Euro, Pound Sterling and Scandinavian coins are all trading in profit against the US Dollar and weighs on the US Dollar Index in a negative sense.
Economic data the Durable Goods orders all cae in higher than the previous number, but the downward revisiosn were too difficult to digest for investors. The US Dollar briefly paired back some losses before dropping back to session low’s levels once the revisions came out. Another important number that could influence the Greenback’s performance is the Conference Board’s Consumer Confidence Index for June, which is expected to rise from 102.30 to 104.00, an outcome that should help lift sentiment in the US Dollar.
Daily digest: US Dollar traders falter on lower Durable Goods revisions
- US Durable Goods Ex Transportation came in strong at 0.6% from -0.3%. That same -0.3% rather was revised down to -0.6%. The Cap Godos Orders non-defence Ex Air came in lower but still positive from 1.3% to 0.7%. That same 1.3% got revised down to 0.6%. Plenty of knee-jerk reaction on the back of these numbers and next the disappointing revisions. The dust needs to settle before traders and markets realise that the current numbers are even more positive then perceived, and could still see a stronger US Dollar later in the US session.
- European Central Bank President Christine Lagarde held opening remarks at the ECB’s symposium in Sintra, Portugal. She remained hawkish by saying that it is unlikely that the ECB can say soon that the interest-rate peak has been reached.
- China’s PBoC fixed the Yuan at 7.2098 instead of 7.2209 estimated. This triggered a spike in Chinese equities and a sharp drop for the Greenback.
- Moreover, the Redbook Index – which gauges store sales in the US – is due at 12:55 GMT. It increased 0.9% a week earlier. S&P/Case-Shiller Home Price Indices numbers for the monthly and yearly performance in April will come out at 13:00 GMT. The monthly House Price Index is set to slow from 0.6% to 0.3%. On a yearly basis, the index is expected to show that prices fell 2.6% in April, more than the 1.1% decline seen in March.
- At 14:00 GMT, New Home Sales are expected to cool down from 683K to 675K. The Conference Board Consumer Confidence index is expected to jump from 102.30 to 104.00. Traders can also look at the Richmond Fed Manufacturing Index, which should pick up as well from -15 to -10 for June. Richmond Fed Services Index should be seen tilting up as well, from -10 to 7, as activity picks up again.
- Finally to close this day off in terms of data, at 14:30 GMT the Dallas Fed Services Revenues Index for June is expected to come out a touch softer, from 6.9 to 6.0, and the Texas Services Sector Outlook should move higher from -17.3 but no expectations are forecasted here.
- The US Treasury set to head to the markets to sell $43 billion notes of 5-year maturity.
- No Fed speakers expected.
- With the jump in Chinese equities, Iron Ore Futures are up 2.4% at sessions’ high level at $825 on the assumption that demand from China could pick up again.
- Asian equities are having a field day. The Chinese Hang Seng index closed at 1.88%, while Japan’s Topix closed in the red at *-0.28%. European stock markets have reversed a big part of earlier gains, and are treading water as the US session is to kick off soon. US equity futures are mildly in the green with Dow Jones Futures flat and Nasdaq futures up 0.30%.
- The CME Group FedWatch Tool shows that markets are pricing in a 76.9% chance of a 25 basis points (bps) interest-rate hike on July 26th. The certainty of one more hike has increased as US Fed Chairman Jerome Powell remained hawkish in the recent two hearings, though markets remain reluctant to price in that second rate hike.
- The benchmark 10-year US Treasury bond yield trades at 3.71% and sees yields climbing while bond prices fall. Markets are quickly unwinding their risk bets after the events over the weekend in Russia.
US Dollar Index technical analysis: US Dollar hiccup after Durable Goods revisions
The US Dollar is being tripped for a secon time today: First was the PBoC that blindsided Greenback traders with a surprise hike in its Yuan fixing overnight, and now US Durable Goods see downward revisions after initial numbers were all a beat on expectations. The Greenback gets pushed back to session’s lows in several pairs. This filters into the US Dollar Index, which struggles to find any green counterweights in this weaker US Dollar session.
On the upside, the 100-day Simple Moving Average (SMA) briefly touched at 103.05 remains as the 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 102.61 is being breached again, losing its importance after being chopped up several times last week.Rather look for 102.50 to check if it holds support. In case the DXY slips below 102.50, more weakness is expected with a full slide to 102.00 and a retest of June’s low at 101.92.
US Dollar FAQs
What is the US Dollar?
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 notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took 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 went away.
How do the decisions of the Federal Reserve impact the US Dollar?
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
What is Quantitative Easing and how does it influence the US Dollar?
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
What is Quantitative Tightening and how does it influence the 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 from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
