- The US dollar retreats further from the high reached on Monday.
- Investors are preparing for the Fed's statements this Wednesday, in a very reduced economic calendar.
- US Dollar Index gives way below 104 in search of support.
He US dollar (USD) remains sideways this week and is leaning towards a negative return ahead of the US opening bell. The effects of the optimistic US employment report and geopolitical tensions – with the evolution of the Cessation of Hostilities talks in the Gaza region – are beginning to favor the Dollar. Hamas has presented a plan for a 135-day truce in three phases that is now being discussed by all sides.
On the economic front, traders will have some dovish data on their hands. Nothing is expected from the US trade balance that could move the markets. Instead, the comments of the three members of the US Federal Reserve (Fed) who will speak this Wednesday could be decisive. These speakers are: Adriana Kruger, member of the Board of Governors, who will speak around 16:00 GMT, Thomas Barking of the Richmond Fed, around 17:30 and Michelle Bowman, who like Kruger is also a member of the Board of Governors. Her intervention is scheduled for 19:00 GMT.
Daily Market Summary: A Welcome Break
- At 12:00 GMT the weekly mortgage loan applications were published. Previously a contraction of 7.2% was recorded, while this week there has been a rebound of 3.7%.
- Around 1:30 p.m., the figures for the United States Trade and Goods Balance are expected:
- The December goods and services trade balance is expected to show a deficit of $62.2 billion compared to the previous deficit of $63.2 billion.
- In the previous report, the Goods Trade Balance showed a deficit of $88.5 billion, but there were no forecasts for the December figure.
- As mentioned a few paragraphs above, no less than three Fed speakers will be on the microphones today, the Fed's Kruger, Barking and Bowman.
- Around 6:00 p.m., the US Treasury will award the always important 10-year Bond in the markets.
- Stock markets show no signs of abandoning this bullish movement. Previous losses in US stock futures have already narrowed, with all three major futures trading in the green ahead of the US opening bell.
- CME Group's FedWatch tool now focuses on the March 20 meeting. Expectations of a pause are 78.5%, while 21.5% favor a rate cut.
- The 10-year U.S. Treasury yield is trading near 4.11%, down from Monday's high of near 4.17%.
Dollar Index Technical Analysis: Take it easy
It appears that the US Dollar Index (DXY) is taking a pause following its rally on Friday and Monday. It appears that the Dollar is on its way to becoming the Dollar King again, although there is no talk of the DXY returning to 107. For now, equilibrium appears to have been found with the DXY pulling back a bit in search of support.
If the US Dollar Index were to rise again, it would first need to test Monday's high, near 104.60 points. This level must be broken and is more important than the 100-day simple moving average, which stands at 104.30 points. Once broken above Monday's high, the path is open for a jump to 105, with 105.12 as a key level to watch.
The 100-day SMA is clearly the wheel of the recovery at the moment. Monday's false breakout and Tuesday's absence of support from the moving average open the door to a short squeeze to the downside. The first ideal candidate for support is the 200-day SMA near 103.59. In case it gives way, look for support at the 55-day SMA near 103.
Risk Sentiment FAQ
What do the terms “risk aversion” and “risk sentiment” mean in financial markets?
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 bear during the reference period. In a “risk-on” market “, investors are optimistic about the future and are more willing to buy risky assets. In a “risk-free” market, investors start to “play it safe” because they are worried about the future and therefore buy assets less risky ones that are more likely to bring benefits, even if they are relatively modest.
What are the key assets to follow to understand risk sentiment dynamics?
Typically, during periods of “risk appetite”, stock markets rise, and most commodities – except gold – also appreciate as they benefit from positive growth prospects. The currencies of countries that are large exporters of raw materials strengthen due to increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds – especially major government bonds – rise, Gold shines and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar benefit.
Which currencies strengthen when the sentiment is “risk appetite”?
The Australian dollar (AUD), the Canadian dollar (CAD), the New Zealand dollar (NZD) and minor currencies such as the ruble (RUB) and the South African rand (ZAR) tend to rise in markets where there is an “appetite for risk.” This is because the economies of these currencies rely heavily on commodity exports for their growth, and these tend to rise in price during periods of “risk appetite.” This is because investors anticipate higher demand for raw materials in the future due to increased economic activity.
Which currencies strengthen when sentiment is “risk averse”?
The major currencies that tend to rise during risk-off periods are the US dollar (USD), the Japanese yen (JPY) and the Swiss franc (CHF). The dollar, because it is the world's reserve currency and because in times of crisis investors buy US public debt, which is considered safe because the world's largest economy is unlikely to default. The yen, due to the increase in demand for Japanese government bonds, since a large proportion is in the hands of domestic investors who are unlikely to get rid of them, even in a crisis. The Swiss franc, because strict Swiss banking legislation offers investors greater capital protection.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
