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Dollar weakens, weekly jobless claims dampen mood of rapid recovery

  • The Dollar falls again after the weekly figures for unemployment benefit applications.
  • Operators are concerned about positioning for the future.
  • The US Dollar Index flirts with a break below 104.

He US dollar (USD) It leaves its narrow range on Thursday and flirts with Tuesday’s initial low. Traders are looking for new clues and confirmation of whether the Fed is truly done raising rates, and are raising bets on when it will cut first. Meanwhile, yields fall and stocks rise, meaning the story of the rate differential between the dollar and other currencies becomes less important.

This Thursday’s calendar is very packed, with all eyes on the speakers from the US Federal Reserve: no less than five members of the Board of Governors are expected to speak. If we add to this a few data that could confirm and reassure traders that the Fed has already finished raising interest rates, a new devaluation of the Dollar is possible. In the background, the clock continues to tick in relation to the US debt ceiling, with no concrete solution in sight.

Daily summary: The dollar falls after the increase in unemployment benefit applications

  • The US Senate has approved a temporary funding bill to avoid a government shutdown.
  • US President Joe Biden met with Chinese President Xi Jinping on Wednesday at the historic Filoli estate south of San Francisco: The reports appear to be quite positive: the two superpowers have agreed to reopen lines of communication and China will regulate exports of chemicals used in the manufacture of the opioid fentanyl. However, differences over Taiwan remain a sore point.
  • No less than five members of the United States Federal Reserve will speak this Thursday:
    1. Lisa D. Cook, a member of the Board of Governors of the Federal Reserve, will speak at 11:00 GMT. There are no headlines to report from this speech.
    2. Cleveland Fed President Loretta Mester stated that the Fed is comfortable with the current rate situation and remains dependent on the data.
    3. At 2:25 p.m., New York Fed President John Williams was scheduled to speak, although without comment on the political outlook.
    4. Federal Reserve Governor Christopher Waller will take the stage around 3:30 p.m.
    5. Loretta Mester will speak for the second time this Thursday around 5:00 p.m., along with Lisa Cook.
  • Around 13:30 GMT the weekly report on weekly unemployment benefit claims will be published:
    1. Initial claims for unemployment benefits have risen from a revised 218,000 to 231,000.
    2. Continuation applications have risen from a revised 1,833,000 to 1,865,000.
  • At the same time, the import and export price index was published:
    1. The monthly Export Price Index for October went from a revised 0.5% to -0.59%.
    2. The annual export price index stood at -4.1% and headed towards -4.9%.
    3. The monthly import price index for October fell from a revised 0.4% to -0.8%.
    4. The annual import price index stood at -1.7% and dropped to -2%.
  • The latest data at 13:30 GMT was the Philadelphia Fed manufacturing survey for November, which went from -9 to -5.9.
  • Industrial Production for the month of October went from a revised 0.1% to -0.6%.
  • At 15:00 GMT the National Association of Home Builders (NAHB) Housing Market Index for November will be published: A stable figure of 40 is expected.
  • The last important figure this Thursday will be the Kansas Fed manufacturing activity index for November. The previous figure stood at -8, so no forecast is foreseen.
  • Shares took profits after two days of recovery. The Hang Seng lost more than 1%, while Japan managed to contain losses to less than 1%. European stocks open slightly lower, while US stock futures place the Nasdaq at the head of the declines.
  • CME Group’s FedWatch tool shows that markets are pricing in at 100%, up from 85.7% on Tuesday morning, the likelihood that the Federal Reserve will keep interest rates unchanged at its December meeting.
  • The 10-year US Treasury yield is trading at 4.46% and is slowly starting to rise.

Dollar Index Technical Analysis: Hopes for Quick Recovery Dim

The Dollar tries to continue its recovery after Tuesday’s collapse. However, the recovery is not as fast as expected, since only baby steps are seen in the Dollar Index (DXY). It appears that traders have been unwinding their long dollar positions and only a substantial catalyst in favor of the dollar will help the DXY return to 105 and rise.

The DXY managed to bounce off the 100-day SMA near 104.20. A bounce is expected from there, with 105.29, the November 6 low, being the market level that the DXY should attempt to close above this week. From there, the 55-day SMA at 105.71 is the next price point on the upside that must be reclaimed by the US Dollar bulls before they start thinking about further US Dollar strength. USA to come into play.

Traders were warned that when the Dollar Index fell below the 55-day SMA, a large air pocket would open that could cause a substantial drop in the DXY. This materialized on Tuesday. For now, the 100-day SMA is trying to hold, at 103.62, although the 200-day SMA is a much better candidate for support. If this level were to be broken substantially, a long-term sell-off could begin with the DXY falling between 101.00 and 100.00.

Central Banks: Frequently Asked Questions

What does a central bank do?

Central banks have the fundamental mandate of ensuring price stability in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant rise in the prices of the same goods means inflation, a constant fall in the prices of the same goods means deflation. It is the central bank’s job to keep demand in line by adjusting its interest rate. For the largest central banks, such as the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

What does a central bank do when inflation is below or above the expected target?

A central bank has an important tool to raise or lower inflation: modify its reference interest rate. At pre-communicated times, the central bank will issue a statement with its reference interest rate and give additional reasons why it maintains or modifies it (cuts or raises it). Local banks will adjust their savings and loan rates accordingly, which in turn will make it harder or easier for citizens to make a profit on their savings or for companies to borrow and invest in their businesses. When the central bank substantially raises interest rates, we speak of monetary tightening. When you reduce your reference rate, it is called monetary easing.

Who decides monetary policy and interest rates?

A central bank is usually politically independent. Members of the central bank’s policy council go through a series of panels and hearings before being appointed to a position on the policy council. Each member of that council usually has a certain conviction about how the central bank should control inflation and the subsequent monetary policy. Members who want a very loose monetary policy, with low rates and cheap loans, to substantially boost the economy, while settling for inflation slightly above 2%, are called “doves.” Members who prefer higher rates to reward savings and want to control inflation at all times are called “hawks” and will not rest until inflation is at 2% or just below.

Is there a president or head of a central bank?

Typically, there is a chairperson who leads each meeting, has to create a consensus among the hawks or doves, and has the final say when votes need to be divided to avoid a 50-50 tie on whether to adjust current policy. The president will give speeches, which can often be followed live, in which he will communicate the current monetary stance and outlook. A central bank will try to push its monetary policy forward without triggering violent swings in rates, stocks or its currency. All central bank members will channel their stance toward markets ahead of a monetary policy meeting. A few days before a monetary policy meeting is held and until the new policy has been communicated, members are prohibited from speaking publicly. This is what is called the blocking period.

Source: Fx Street

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