- The US dollar falls after the first opening of the week
- The Euro is advancing firmly against the US Dollar after a report showed that wages in the Eurozone remain high, attributed to stagnant inflation.
- The Dollar Index continues to break below 104 after the opening bell in the United States.
The US Dollar (USD) is going red hot at its first US opening bell this week, with markets seeing European yields soar against stable US rates. European rates comes after the European Central Bank (ECB) reported that wages in the Eurozone are high and remain strong, which could push the ECB's first rate cut later than expected. Furthermore, markets are not applauding the People's Bank of China's (PBOC) decision to cut its 5-year prime lending rate.
China is in completely different territory in terms of economic data, with deflation, a sluggish labor market, a tormented real estate market and declining growth. The cuts are larger than expected, although market reaction is signaling that more needs to be done to push China back to its pre-pandemic economic and growth levels.
In terms of economic data, the US Treasury will have a lot of work this Tuesday with no less than three bond auctions. As for the economic data, most of them are advanced to Wednesday due to the holiday on Monday. This week, all eyes are on the stock markets, with Walmart and Home Depot releasing earnings this Tuesday.
Daily summary of market movements: The Dollar is going through a moment of weakness
- The Philadelphia Fed non-manufacturing index for February stood at -8.8, up from -3.7.
- European bond yields are rising against US bond yields on Tuesday after the European Central Bank (ECB) released a report revealing that wages in the Eurozone remain high, which could increase inflation in the coming months, curbing current rate cut expectations. The price of the euro against the dollar stood at 1.08, a level it had not reached since February 2.
- China has lowered its prime lending rate on the following maturities:
- The 1-year yield, unchanged, at 3.45%, when 3.40% was expected.
- The 5-year rate has been reduced from 4.20% to 3.95%, when 4.10% was expected.
- Car sales in Europe increased by 11% in January.
- The US Treasury Department holds a triple auction at 16:30 GMT. Bills for 3 months, 6 months and 52 weeks will be auctioned.
- Stocks remain in the red, looking for direction. Meanwhile, the risk asset end is doing very well with Ethereum and Bitcoin jumping substantially higher.
- CME Group's FedWatch tool now focuses on the March 20 meeting. Expectations of a pause are 91.5%, while 8.5% favor a rate cut.
- The 10-year US Treasury yield is trading slightly higher, near 4.28%, after closing at 4.28% on Friday and remaining closed on Monday due to the US holiday.
Dollar Index Technical Analysis: The Dollar Outperforms the Euro
The US Dollar Index (DXY) remains above 104, although pressure is building again on the support level. This doesn't mean anything substantial since this Tuesday is actually the Monday after the US was closed due to President's Day. Traders are expected to catch up and the first moves will occur on Wednesday, ahead of the release of the US Federal Reserve Minutes on Wednesday evening.
If the Dollar reaches 105.00 on Friday, we will have to keep an eye on 105.12. One step further, 105.88, the November 2023 high. Ultimately, 107.20 – the 2023 high – could even become relevant again, but that would occur when several inflation measures exceeded forecasts for several weeks in a row.
The 100-day SMA appears to be holding for now, although pressure is building for a break, near 104.18, so the 200-day SMA near 103.70 appears stronger. In case it gives way, look for support at the 55-day SMA near 103.14.
Risk Sentiment FAQ
What do the terms “risk-on” and “risk-off” mean when referring to sentiment in financial markets?
In the world of financial jargon, the two terms “risk appetite (risk-on)” and “risk aversion (risk-off)” refer to the level of risk that investors are willing to bear during the investment period. reference. In a “risk-on” market, investors are optimistic about the future and are more willing to buy risky assets. In a “risk-off” market, investors begin to “play it safe” because they are worried for the future and, therefore, buy less risky assets that are more certain to provide a return, even if it is 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 sentiment is “risk-on”?
The Australian Dollar (AUD), Canadian Dollar (CAD), 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 “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 periods of “risk aversion” 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 it is unlikely that the world's largest economy will go into 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.
