- The Greenback trades flat and is looking for direction.
- Traders will be looking for clues and guidance from Fed Chairman Powell.
- The US Dollar Index is steady in the 105-area and looks to be awaiting a catalyst for a move in any direction.
The US Dollar (USD) looks to be on a drift this week and is looking for direction, or a catalyst that might guide it in any way. The fact that the US Dollar Index is right in the middle of this week’s trading range, clearly points to some fatigue in the Greenback while traders are trying to assess the current situation in terms of a recession or soft landing for the US economy.
On the economic data front, traders will be looking for clues again from the US Federal Reserve speakers that are on the docket for this Thursday. The weekly jobless claims could shed some light and could confirm the weaker US jobs report from last week, should there be an uptick in unemployment numbers. That could be an early sign on the wall and could send the US Dollar weaker against most major currencies.
Daily digest: US Dollar faces jobless numbers
- The US 10-year bond auction on Wednesday was quite a success: The bond got placed at 4.519%, from earlier 4.610%. The Bid/Cover Ratio was at 2.45 against 2.50 previous. So for every tranche there was more demand than needed to get the bond filled.
- Philadelphia Fed president Patrick Harker said early on Thursday that rates should stay higher for longer and that the fight against inflation is still ongoing.
- Early morning comments from European Central Bank’s Luis De Guindos, made it clear he thought rate cuts were too premature to be factored in, and saw risk for an inflation surge in the next months.
- Near 13:30 GMT the Jobless Claims are due to come out:
- Initial Jobless Claims are expected to rise from 217,000 to 218,000.
- Continuing Jobless Claims are expected to head from 1.818 million to 1.820 million.
- Atlanta Federal Reserve President Raphael Bostic is due to release comments around 14:30 GMT and near 16:00 Thomas Barkin from the Richmond branch is due to make some comments.
- The US Treasury will have busy days as well and will be more than happy to do two bond placements at some less elevated rate levels: a 4-week bill and a 30-year bond auction are due to take place at 16:30 GMT and 18:00 GMT.
- To close the day off, traders will brace for comments from US Federal Reserve Chairman Jerome Powell around 19:00 GMT, at a panel discussion on monetary policy for the IMF.
- Equities are painting a very binary view this Thursday: Japan equities are in the green with over 1% profit for the Nikkei and the Topix. The Chinese Hang Seng is flat, together with European and US equities.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 90.4% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December.
- The benchmark 10-year US Treasury yield trades at 4.53%, after a successful allocation by the US Treasury earlier on Wednesday.
US Dollar Index technical analysis: US Dollar traders looking for clues
The US Dollar has partially made good after its weak performance at the end of last week. That said, the recovery does not look strong enough for the US Dollar Index (DXY) to be able to recoup all the losses incurred by Friday.
The DXY was looking for support near 105.00, and has been able to bounce ahead of it. Any shock events in global markets could spark a sudden turnaround and favour safe-haven flows into the US Dollar. A rebound first to 105.85 would make sense, a pivotal level from March 2023. A break above could mean a revisit to near 107.00 and recent peaks printed there.
On the downside, 105.10 is still acting as a line in the sand. Once the DXY slides back below that, a big air pocket is opening up with only 104.00 as the first big level where the 100-day Simple Moving Average (SMA) can bring some support. Just beneath that, near 103.50, the 200-day SMA should provide similar underpinning.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
