- The US Dollar trades flat while the Nasdaq faces 2.6% losses ahead of the opening bell.
- Fed Chairman Powell left comments on Friday that the central bank does not need to make any move right now.
- The US Dollar Index hangs on to 103.50 while traers have concerns on the value of the Greenback.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is just a sigh away from a four-month low of 103.50 set on Friday. Traders are sending US equities lower while mulling the recent comments from United States (US) President Donald Trump, who commented on the US economy during a Fox News interview over the weekend. The President said the US economy is in a transition period, which comes with a little bit of pain, whilst markets in recent days have questioned if the US economy is not in a recession.
On the economic data front, the focus for this week will be the Consumer Price Index (CPI) data for February on Wednesday. Besides that, it will be a very quiet week on the Federal Reserve (Fed) front as the central bank has started its blackout period ahead of the March 19 meeting.
Traders got to hear from Fed Chairman Jerome Powell on Friday evening. Powell said that the Fed does not need to do anything at this very moment while monitoring incoming data. He also acknowledged the rising economic uncertainties in the US but said they do not need to rush to adjust policy.
Daily digest market movers: Deep dive
- It is a very calm start to the week with a near-empty economic calendar. Only the US Treasury will auction a 3-month and a 6-month bill at 15:30 GMT.
- During a Fox News interview over the weekend, US President Donald Trump said the economy faced “a period of transition” as he pressed on with his focus on tariffs and federal job cuts, Bloomberg reports.
- Former Bank of Canada (BoC) and Bank of England (BoE) Governor Mark Carney has won the race to replace Justin Trudeau as the new Canada Prime Minister. The upcoming Prime Minister vowed to win the trade war with President Trump, CNN reported.
- Equities are correcting sharply on Monday ahead of the US opening bell. The Nasdaq is leading the decline down 2.6% at the time of writing.
- The CME Fedwatch Tool projects a 63.0% chance of interest rates kept in the current range of 4.25%-4.50% in the May meeting. Probabilities of interest ates being lower in June stands at 85.8%.
- The US 10-year yield trades around 4.24%, off its near five-month low of 4.10% printed on Tuesday.
US Dollar Index Technical Analysis: More to come?
The US Dollar Index (DXY) is under pressure and looks for direction on Monday after some headlines about US President Donald Trump over the weekend. Markets are still mulling whether the US economy is or will be in a recession as President Trump powers through with his tariffs and reciprocal levies by April. Should the US Consumer Price Index (CPI) data reveal a substantial resurgence in inflation later this week, recession fears would spark even more.
There is an upside risk at 104.00 for a firm rejection. If bulls can avoid that, look for a large sprint higher towards the 105.00 round level, with the 200-day Simple Moving Average (SMA) at 105.03. Once broken through that zone, a string of pivotal levels, such as 105.53 and 105.89, will present as caps.
On the downside, the 103.00 round level could be considered a bearish target in case US yields roll off again, with even 101.90 not unthinkable if markets further capitulate on their long-term US Dollar holdings.
US Dollar Index: Daily Chart
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.
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