- The US dollar calm on Monday, although still at elevated levels near last week’s high.
- Tensions in the Middle East persist as traders prepare for the Fed minutes and US CPI release later this week.
- The Dollar Index is trading above 102.00, with traders worried about sending the DXY towards 103.00.
The US Dollar (USD) is having a very soft start to the week, moving sideways on Monday, with the Dollar Index (DXY), which tracks the value of the greenback against six major currencies, hovering around 102.50. As traders prepare for the US Federal Reserve (Fed) minutes and the release of the US Consumer Price Index (CPI) for September later this week, no less than four speakers from The Fed are scheduled to guide markets toward the November rate decision on Monday.
The economic calendar is light on Monday, with only the Consumer Credit Change for August on the agenda in terms of figures. Later this week, the US CPI on Thursday will be the main driver of the US Dollar. Markets are still assessing whether the US economy is on a soft landing, a Goldilocks scenario, or rather a recession prospect.
Daily Market Summary: Israel considers options
- There is no agreement or green light from US President Joe Biden on Israel’s question of attacking Iranian oil fields. The Biden administration did not give a firm no, but on Friday, President Biden told Bloomberg that he would be thinking about alternatives other than attacking the oil fields.
- The Change in Consumer Credit for August will be published at 19:00 GMT, with expectations to see a fall to $12 billion from $25.45 billion in July.
- Four Fed speakers are scheduled for Monday:
- At 17:00 GMT, Federal Reserve Governor Michelle Bowman takes part in a fireside chat on banking regulation at the Independent Bankers Association of Texas (IBAT) annual convention in San Antonio, Texas.
- Around 17:50 GMT, Federal Reserve Bank of Minneapolis President Neel Kashkari participates in a question and answer session and moderated discussion at the Bank Holding Company Association (BHCA) Fall Seminar in Edina, MN.
- At 22:00 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic moderates a conversation about the business of professional sports as part of the Atlanta Fed’s Leading Voice series.
- To close on Monday, around 22:30 GMT, Federal Reserve Bank of St. Louis President Alberto Musalem delivers a speech on the US economy and monetary policy at a Money Marketeers event at New York University.
- European markets are struggling on Monday, with equity indices falling, while US futures look even slower with bigger losses on the day, around 0.50% on average.
- The CME’s Fedwatch tool shows a 93.1% probability of a 25 basis point (bps) interest rate cut at the next Fed meeting on November 7, while 6.9% are assessing no there will be rate cuts. The chances of a 50 bps rate cut have been completely ruled out now.
- The US 10-year benchmark rate is trading at 3.99%, a 30-day high, and flirting with a break above 4.00%.
DXY Dollar Index Technical Analysis: Fed Futures Completely Revalued
The US Dollar Index (DXY) has risen at a speed that instantly brings Usain Bolt to mind. With a 50 bps rate cut fully priced in and the odds of no rate cut starting to grow more likely, the pendulum may have swung a little too far too fast. DXY is expected to relax a bit and look for support before the next directional move.
The psychological level of 103.00 is the first big number to address to the upside. Higher up, the chart identifies 103.18 as the final level for this week. Once above there, a very volatile area emerges with the 100-day SMA at 103.34, the 200-day SMA at 103.76, and the crucial 103.99-104.00 levels in play.
On the downside, the 55-day SMA at 102.03 is the first line of defense, supported by the round figure at 102.00 and the crucial 101.90 level as support to trap any bearish pressure and trigger a bounce. If that level doesn’t work, 100.62 also acts as support. Further down, a test of the year-to-date low of 100.16 should take place before further declines. Finally, and that means giving up the big 100.00 level, the July 14, 2023 low at 99.58 comes into play.
Dollar Index: Daily Chart
The Fed FAQs
The monetary policy of the United States is directed by the Federal Reserve (Fed). The Fed has two mandates: achieving price stability and promoting full employment. Your main tool to achieve these objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the Federal Reserve’s 2% target, it raises interest rates, raising borrowing costs throughout the economy. This translates into a strengthening of the US Dollar (USD), as it makes the United States a more attractive place for international investors to place their money. When inflation falls below 2% or the unemployment rate is too high, the Federal Reserve can lower interest rates to encourage borrowing, which weighs on the greenback.
The Federal Reserve (Fed) holds eight meetings a year, in which the Federal Open Market Committee (FOMC) evaluates the economic situation and makes monetary policy decisions. The FOMC is made up of twelve Federal Reserve officials: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the eleven presidents of the regional Reserve banks, who serve for one year on a rotating basis.
In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE usually weakens the US dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the capital of the maturing bonds it has in its portfolio to buy new bonds. It is usually positive for the value of 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.
