- The US Dollar is seeing some profit taking ahead of a very light day on the economic calendar.
- Markets welcome Fed Chair Powell's hawkish comments and change in stance.
- However, the US Dollar Index is entering the 106 area.00, indicating that a small pullback could occur.
The US Dollar Index (DXY) eases on Wednesday as it becomes increasingly clear that markets have won the fight with the US Federal Reserve (Fed). Recent upward moves in both bond yields Americans and the US dollar were enough to twist the arm of Fed Chairman Jerome Powell. Powell stated on Tuesday that recent data show a lack of further progress in containing inflation, and that it will take longer to have enough confidence that price growth is approaching the target before considering the first rate cut. guys.
As far as economic data is concerned, no data is expected to influence the market, apart from some second level figures. Some Fed members will take the stage right at the end of the US session, with appearances by Federal Reserve Bank of Cleveland President Loretta Mester and Federal Reserve Governor Michelle Bowman.
Daily summary of market movements: The Fed is now in line with the markets
- Weekly mortgage loan applications for the week of April 12 have been released. Last week the index stood at 0.1% and this week at 3.3%, despite high rate levels.
- The US Treasury holds a long-term bond auction at 17:00 GMT for a 20-year bond.
- The Fed Beige Book will be published at 18:00 GMT.
- At 20:00 GMT the Treasury's international capital flows (TIC) for the month of February will be published:
- Long-term net ICT flows are expected to increase from $36.1 billion to $40.2 billion.
- Total net ICT flows were $8.8 billion in January and no forecasts are available for February.
- Two Fed members are scheduled for Wednesday:
- Federal Reserve Bank of Cleveland President Loretta Mester, around 21:30 GMT, participating in the South Franklin Circle Dialogues.
- Federal Reserve Governor Michelle Bowman will speak at around 23:15 GMT at the Institute of International Finance in Washington DC
- European and US stocks are moving away from the red numbers for this week and are slightly on the rise, with the Eurostoxx 50 as the biggest winner, with a rise of 0.70% for this Wednesday.
- According to CME Group's FedWatch tool, expectations of a Fed pause at the May meeting stand at 94.6%, while the odds of a rate cut stand at 5.4%. It appears that markets are moderating their more aggressive outlook.
- The 10-year US Treasury bond yield is trading around 4.65%.
US Dollar Index Technical Analysis: Profit taking for now as spread remains wide
The US Dollar Index (DXY) eases a bit on Wednesday. With Fed Chair Jerome Powell confirming that it will take longer than expected to start lowering interest rates, the DXY is likely to retrace some of the rally that has taken place since the Consumer Price Index numbers. from last week. Some pullback is expected, although the substantial widening of the rate differential between the highest rates in the US and the rest of the world should keep the DXY above 104.00.
To the upside, Tuesday's new high at 106.52 is the level to beat first. Further up and above the round level of 107.00, the DXY index could find resistance at 107.35, the October 3 high.
On the downside, the first important level is 105.88, a fundamental level since March 2023, which demonstrated its importance on Monday by holding as support. Further down, 105.12 and 104.60 should also act as support ahead of the region with the 55-day and 200-day SMA at 104.17 and 103.91, respectively.
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.
