- The dollar is trading sideways, as Monday was full of geopolitical headlines.
- US Retail Sales will be released at 12:30 GMT.
- The Dollar Index is in the middle of October’s range.
The US dollar (USD) was steady on Monday in a market that had seen a wild ride in commodities. First, the energy complex was shaken by comments from Iran, Turkey and the United States on the Palestinian-Israeli situation. The dollar remained stable despite the headlines and drove stocks higher.
As for the data, traders can sink their teeth into US retail sales, which will be released this Tuesday an hour before the US stock market opens. As always, the data could provoke a knee-jerk reaction, as initial moves are often contradicted by the revision of the previous figure. In other words, prepare for volatility.
Daily summary: Dollar focuses on data
- This Tuesday, New York Fed President John Williams will speak at around 12:00 GMT.
- As for the data, retail sales will be published this Tuesday around 12:30 GMT: The monthly indicator for September is expected to drop from 0.6% to 0.3%. The figure for the control group was previously set at 0.1%, with no expectations foreseen on this occasion. Excluding automobiles, the indicator could grow 0.2% compared to the previous 0.6%.
- At 12:55 GMT the Redbook Index for the week of October 13 will be published. The previous reading was 4%.
- Around 13:15 GMT the monthly industrial production for September will be published. The figure is expected to go from 0.4% to 0%.
- Around 13:20 GMT the statements of Michelle Bowman, governor of the Federal Reserve, will be known.
- Two more figures will be published around 14:00 GMT: US business inventories for August, which are expected to rise from 0% to 0.3%. Additionally, the National Association of Home Builders (NAHB) will release the monthly housing market index for October, which is expected to rise from 45 to 44.
- Around 14:45 GMT, expect some headlines from Thomas Barkin of the Federal Reserve Bank of Richmond.
- Very mixed stocks, with European and American stocks down, while Asian stocks advance 1%.
- CME Group’s FedWatch tool shows that markets are pricing in a 90.1% chance that the Federal Reserve will keep interest rates unchanged at its November meeting.
- The benchmark 10-year US Treasury yield shot up to 4.75% and continues to rise as the bond sell-off continues.
Technical analysis of the Dollar Index: Waiting to choose sides
The dollar appears to have reached the end of the line of its relentless rally since July. No wonder quotes are cooling and the US Dollar Index (DXY) has retreated from its high. With the DXY in the middle of this month’s range, the outcome will depend on three things: the rate differential of US yields against other currencies, risk sentiment driven by geopolitical headlines and Powell’s speech on Thursday.
A bounce above the daily trend line from July 18 could still materialize. At the top, it is important to reach 107.19 points. In that case, 109.30 is the next level to watch.
On the downside, the recent resistance at 105.88 did not do a good job of supporting any slowdown. Instead, we expect 105.12 to keep the DXY above 105.00. If that doesn’t work, 104.33 will be the best level to look for a resurgence of dollar strength, with the 55-day SMA as support level.
US Dollar FAQ
What is the US Dollar?
The United States Dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a significant number of other countries where it is in circulation alongside local banknotes. According to 2022 data, it is the most traded currency in the world, with more than 88% of all global currency exchange operations, equivalent to an average of $6.6 trillion in daily transactions.
After World War II, the USD took over from the pound sterling as the world’s reserve currency.
How do the decisions of the Federal Reserve affect the Dollar?
The single most important factor influencing the value of the US Dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: achieve price stability (control inflation) and promote full employment. Your main tool to achieve these two objectives is to adjust interest rates.
When prices rise too quickly and inflation exceeds the 2% target set by the Fed, the Fed raises rates, which favors the price of the dollar. When Inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the Dollar.
What is Quantitative Easing and how does it influence the Dollar?
In extreme situations, the Federal Reserve can also print more dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged financial system. This is an unconventional policy measure used when credit has dried up because banks do not lend to each other (for fear of counterparty default). It is a last resort when a simple lowering of interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE usually leads to a weakening of the US Dollar.
What is quantitative tightening and how does it influence the US dollar?
Quantitative tightening (QT) is the reverse process by which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing portfolio securities in new purchases. It is usually positive for the US dollar.
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.
