- The Greenback trades steady at a minor loss at the start of this week.
- US traders are back to their normal schedule after Thanksgiving.
- The US Dollar Index is showcasing a descent which could see it eking out more losses this week.
The US Dollar (USD) is picking up where it left off on Friday with a small dip lower, while statistics are not pointing to a recovery anytime soon. From the standpoint of a weekly performance, the Greenback opens a third straight week of losses, losing its grip on several substantial supportive pivotal levels in the US Dollar Index (DXY). US traders will be back in full in the market after the US holidays and are facing a quite heavy macroeconomic schedule for this week, together with a delayed OPEC+ meeting in Dubai on Thursday, while COP28 will kick off as well on the same day in the same venue.
This week starts very light with some data on New Home Sales this Monday. The focal point will be at the last three days of the week, with US Gross Domestic Product (GDP) on Wednesday. Thursday will be market moving with Jobless Claims and the Personal Consumption Expenditures Price Index (PCE) for October. Right at the end of this week, the Institute of Supply Management (ISM) is due to release its Manufacturing Purchase Managers Index (PMI) for November, with cherry on top a speech from US Federal Reserve Chairman Jerome Powell to close out the week.
Daily digest: Soft start for the week
- Iran is coming out with a ‘hopeful’ communication where it supports a long-term truce between Israel and Hamas.
- China’s industrial companies profit falls 7.8% year-over-year measured year-to-date. This means China industrial companies will more than likely not be able to lock in gains for 2023.
- A late start on this Monday for the US session with New Home Sales for October at 15:00 GMT. Expectations are for a slowdown from 0.759 million to 0.725 million.
- Near 15:30 GMT the Dallas Fed Manufacturing Business Index for November is due. Previous was at -19.2.
- The US Treasury will have a busy day, with no less than four auctions:
- Near 16:30 GMT a 3-month Bill is due to be auctioned, together with a 6-month bill.
- At 18:00 GMT a 2-year and a 5-year Note is to be allocated in the markets.
- Interesting – though a lagging indicator – this evening near 20:30 the Commodity Futures Trading Commission (CFTC), will publish their weekly positioning data for the futures markets. The positioning in the US Dollar will be one to watch if investors who are net long USD, having unwound further their positions in favour of other currencies.
- Equities are starting this week in the red after earlier China data disappointed markets, dampening hopes for a speedy recovery of the Chinese economy. All indices are in the red, though less than 1%.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 96.8% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December.
- The benchmark 10-year US Treasury Note traders at 4.45% and is steady after briefly hitting 4.51%.
US Dollar Index technical analysis: US Traders back in the market
The US Dollar is drifting away from its lifelines on both a daily and weekly chart of the US Dollar Index (DXY). With this, more downside starts to open up, and makes traders possibly see further unwinding of their net long positions in the Greenback. Should any datapoint this week bear a negative connotation, it could mean substantially more downside to come for the US Dollar and the DXY.
The DXY is hanging below the 200-day Simple Moving Average (SMA), which is near 103.62. The DXY could still make it back up there, should US traders come back in the market and start buying the current dip. A two-tiered pattern of a daily close and next an opening higher would quickly see the DXY back above 104.25, with the 200-day and 100-day SMA turned over to support levels.
To the downside the 200-day SMA is losing its element as support and is unable to provide any. Rather look for lows of last week at 103.18 and 102.98 as levels for a brief bounce. Should any of the US numbers this week be a substantial disappointment, look for even a 2.5% devaluation in the Greenback to 100.82 with little to support along the way.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Read the full article here