- The US Dollar is trading slightly green against almost all major currencies.
- US markets open after the Labor Day holiday and prepare for ISM PMI data.
- The US Dollar Index has a major resistance level within reach for a breakout.
The US Dollar (USD) is trading broadly flat on Tuesday as it officially kicks off its trading week after US markets were closed on Monday for Labor Day. The Dollar is slightly higher against almost all major currencies on the trading board except against the Japanese Yen (JPY). Meanwhile, markets are a bit shaky following the news that German carmaker Volkswagen is considering closing factories in its home country for the first time ever, which is a massive blow to the German government and the European economy.
Tuesday’s economic calendar features the Institute for Supply Management (ISM) manufacturing survey for August. Traders will be able to see how the U.S. manufacturing sector is faring. In light of recent headlines from Germany, a clear divide between the two nations could push the DXY higher.
Daily Market Drivers Roundup: Recovering after the Holiday
- At 13:45 GMT, S&P Global will release its final Purchasing Managers’ Index manufacturing figure for August. The preliminary reading was 48 and is not expected to be revised.
- At 14:00 GMT, the Institute for Supply Management (ISM) will release its manufacturing figures for August:
- The headline PMI is expected to rise to 47.5 from 46.8.
- The Prices Paid component is expected to decline to 52.5 from 52.9.
- The New Orders Index stood at 47.4 in July, and the Employment Index was at 43.4.
- Aside from the ISM, the TechnoMetrica Institute for Policy and Politics (TIPP) will release its Economic Optimism survey for September. The previous reading was 44.5 with 46.2 expected.
- Stocks are struggling across the board, with minor losses for all European indices and US futures also down.
- The CME Fedwatch tool shows a 69.0% chance of a 25 basis point (bp) interest rate cut by the Fed in September versus a 31.0% chance of a 50 bp cut. Another 25 bp cut (if September is a 25 bp cut) is expected in November with a 49.9% chance, while there is a 41.5% chance of rates being 75 bp (25 bp + 50 bp) below current levels and an 8.6% chance of rates being 100 (25 bp + 75 bp) basis points lower.
- The benchmark 10-year U.S. rate is trading at 3.90%, down slightly on the day after opening at 3.93%.
Economic indicator
ISM manufacturing PMI
He Institute for Supply Management (ISM) The US Manufacturing Index (USMI) releases the manufacturing index, which reflects business conditions in the US manufacturing sector, taking into account expectations for future production, new orders, inventories, employment and deliveries. It is a significant indicator of overall US economic activity. A reading above 50 points indicates expansion in economic activity, while a reading below 50 points implies a decline in activity. A reading above expectations is bullish for the dollar, while a reading below consensus is bearish.
Next post:
Tue Sep 03, 2024 14:00
Frequency:
Monthly
Dear:
47.5
Previous:
46.8
Fountain:
Institute for Supply Management
The Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) provides a reliable perspective on the state of the US manufacturing sector. A reading above 50 suggests that business activity expanded during the survey period and vice versa. PMIs are considered leading indicators and could signal a turn in the business cycle. Stronger than expected results generally have a positive impact on the USD. In addition to the headline PMI, the employment index and prices paid index numbers are closely watched as they shed light on the labor market and inflation.
US Dollar Index Technical Analysis: Next Step
The US Dollar Index (DXY) is at a crossroads this Tuesday, when ISM numbers could either move the DXY above crucial resistance or trigger a firm rejection and send it back down. Expect to see a very volatile DXY on the charts this week with almost every trading day featuring substantial economic data points.
Looking up, 101.90 is very close and could be easily broken if the ISM turns out to be stronger. A strong 2% rise would be needed to take the index to 103.18. A very strong resistance level near 104.00 not only has crucial technical value but also carries the 200-day simple moving average (SMA) as the second heavyweight to limit the price action.
On the downside, 100.62 (the December 28 low) holds as support, although it looks quite weak. If broken, the July 14, 2023 low at 99.58 will be the definitive level to watch. Once that level gives way, early 2023 levels are near 97.73.
US Dollar Index: Daily Chart
US Dollar FAQs
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. As of 2022, it is the most traded currency in the world, accounting for over 88% of all global foreign exchange transactions, equivalent to an average of $6.6 trillion in daily transactions. Following World War II, the USD took over from the British Pound as the world’s reserve currency.
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: to achieve price stability (control inflation) and to promote full employment. Its main tool for achieving these two goals is to adjust interest rates. When prices rise too quickly and inflation exceeds the Fed’s 2% target, the Fed raises rates, which helps 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.
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 in a jammed financial system. It is an unconventional policy measure used when credit has dried up because banks are not lending to each other (for fear of counterparty default). It is a last resort when simply lowering 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 typically leads to a weakening of the US dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of maturing securities in new purchases. It is generally 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.
