- The US dollar will make a 180-degree turn on Tuesday, paring Monday’s losses.
- The US Treasury will auction its always important 10-year bond.
- The Dollar Index is back above 104.50 and looks like it could reach 105.
He US dollar (USD) has almost completely recovered from Monday’s losses. The Polish Dollar (USD/PLN), which rose almost 140%. at any given time, it is the main support for the strength of the Dollar in European trading hours. The surprise rate cut by the Polish Central Bank last week weakens the Central European currency for the fourth consecutive day against the Dollar.
Although the calendar does not contain any important data yet, traders will hopefully start preparing for the US Consumer Price Index (CPI) report due out on Wednesday. Meanwhile, the Bid/Cover ratio on the US 10-year note will give investors a good idea of whether participants believe the US can still withstand these higher rates and repay its maturing debt while so much. Yields are expected to rise again in the US, as ample supply is once again being issued in the markets.
Daily summary: The dollar continues to enjoy good health
- Traders will have seen a flicker on several charts of the Euro and US Dollar against other currencies around 01:00 GMT. Several banks are confirming that a fat-finger occurred in which a change order was given for $600 million, instead of the expected $60 million. The spike or dip was quickly reduced once the error was discovered, although it triggered widespread anomalies in several major pairs.
- Finally, the week began with some US macroeconomic data: the National Federation of Independent Business (NFIB) business optimism index remained at 91.3, compared to 91.9 the previous month.
- At 17:00 GMT the long-awaited US 10-year bond will be auctioned. The previous rate was at 3.99% and is now expected to exceed 4%. Traders will also look at the bid coverage ratio to see how much appetite there was for this auction, as yields will be set higher.
- Stocks are taking a small step back after the Japanese Tema index closed at 0.80% on Tuesday.
- CME Group’s FedWatch tool shows that markets are pricing in a 93% chance that the Federal Reserve will keep interest rates unchanged at its September meeting.
- The 10-year US Treasury yield is trading at 4.29% and remains elevated even after Monday’s pullback.
Technical analysis of the Dollar Index: On the rise again
The Dollar has almost returned to par all the losses suffered on Monday. Last week’s winning streak was briefly interrupted and could be continued starting this Tuesday. If the Dollar Index (DXY) breaks above Monday’s high, another bullish week is expected for the Dollar Index.
The new high to watch is at 105.16, both last Thursday’s high and a six-month high. Firstly, the Dollar Index must regain lost ground this Monday and break above Thursday’s high mentioned above. From there, the next high is at 105.88, the 2023 high.
On Monday, 104.44 kept calm and prevented the DXY from selling off further. The August 25 high served its purpose and acted as a reference level. If this Tuesday’s rally reverses and 104.44 gives way, a substantial pullback could occur to 103.04, where the 200-day SMA comes into play as support.
Risk Sentiment FAQ
What do the terms “risk aversion” and “risk sentiment” mean in financial markets?
In the world of financial jargon, the terms “risk appetite” and “risk aversion” refer to the level of risk that investors are willing to bear during the reference period. In a market with “risk appetite” , 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.
