- The US dollar struggles to find demand at the end of the week.
- Markets are digesting Powell’s words from Thursday.
- US Treasury yields decline, decreasing chances of a December hike.
He US dollar (USD) measured by the Dollar Index (DXY) It fluctuates between gains and losses in the 106.15 area, trading below the 20-day SMA. No relevant data will be published on Friday and attention will focus on the conflict between Israel and Palestine, which could benefit the Dollar as a safe haven asset.
In the United States, economic activity was reported to be better than expected in September. Both industrial production and retail sales exceeded expectations. On Wednesday, the Federal Reserve’s Beige Book report called the U.S. economic situation “stable” and did not reveal any new data since the last report in September. S&P Manufacturing PMIs for October will be released next week, which could influence expectations for the next set of Federal Reserve (Fed) forecasts.
Daily Market Moves Summary: Dollar Fails to Gain Momentum as US Treasury Yields and Fed Hawk Bets Fall
- The US Dollar DXY fell near 106.15, swinging between small gains and losses but still trading below the 20-day SMA.
- In the US, better-than-expected economic activity data was reported during the week, which could limit the DXY’s decline.
- US retail sales stood at 0.7% mom in September, above the 0.3% expected, but slowing from 0.8%.
- Industrial Production rose 0.3% month-on-month in the same month, compared to the expected 0.0%.
- Jobless claims for the week ending October 13 stood at 198,000, below the expected 212,000 and the previous 211,000.
- Meanwhile, US yields retreat as markets evaluate Federal Reserve Chairman Jerome Powell’s words: 2-, 5- and 10-year rates have risen to 5.07%, 4.85% and 4.91% respectively.
- According to CME’s FedWatch tool, the odds of a 25 basis point hike at the December meeting are near 24%, falling from nearly 40% at the beginning of the week.
Technical Analysis: DXY bulls failed to defend the 20-day SMA, and the bears still have work to do.
The US Dollar Index (DXY) is in an intermediate uptrend on the daily chart, holding above the key 100- and 200-day simple moving averages (SMA). However, in the short term, the bears have gained enough momentum to prevail over the bulls.
On the daily chart, the Relative Strength Index (RSI) is pointing south, although it remains above its average of 50. The Moving Average Convergence Divergence (MACD) recorded a bearish crossover on October 5, although the trend The bearish trend reversed on October 12, when the market recovered. Given the dominant bullish trend, the exchange rate could still recover.
The DXY has been on a strong bullish run, with 11 consecutive weeks higher before peaking and forming a bearish doji/shooting star candle in the first week of October. However, this did not continue downwards, as the following week closed higher. Still, it is a warning sign of possible weakness on the horizon.
Supports: 106.00, 105.80, 105.80.
Resistances: 106.33 (20-day SMA), 106.50, 107.00.
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. For most of its history, the US dollar was backed by gold, until the Bretton Woods Agreement of 1971.
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, it 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 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.
