- The Greenback trades steady on Friday as markets reopen after Thanksgiving.
- US Traders gear up for import US PMI data.
- The US Dollar Index still resides below 104 and is at an important crossroad from a technical perspective.
The US Dollar (USD) is still in its snoozefest from Thursday when US markets were closed for Thanksgiving. That said, despite some failed attempts, not one non-US currency was able to benefit from the absence of the US markets. While Black Friday is underway, traders will be on the lookout for some important US data right at the end of this week that could make or break the US Dollar Index’s (DXY) position.
This Friday will all be about the Purchasing Managers Index preliminary reading for November. The importance is even more heightened as on Thursday, the European sub-50 PMI’s were soaring for several core EU countries. Should US PMI numbers this afternoon contract, and fall below 50, it would mean that Europe is in a better condition for recovery than the US, which means a substantial break for the Greenback.
Daily digest: Thanksgiving snooze into the weekend
- Near 14:45 GMT the S&P Purchase Managers Index numbers will be released for November:
- Manufacturing is expected to head from 50 to 49.8.
- Services are expected to head from 50.6 to 50.4.
- The Composite Index was at 50.7 with no expectation foreseen.
- Headline risk is expected for next week with the United Nations’ COP28 meeting to start in Dubai on Thursday. At that same time OPEC+ will have its delayed meeting to address production cuts to uphold current price levels in Oil.
- Equities are very mixed this last day of the trading week: Japanese indices have closed up 0.50% for this Friday. China, on the contrary, is down with the Hang Seng as biggest loser, near 2%. European equities are still looking for direction halfway through the European session, US equity futures are flat.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 99.5% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December.
- The benchmark 10-year US Treasury Note yield halted trading at 4.48% and will not move this Thursday with markets closed.
US Dollar Index technical analysis: Crucial where the close will be
The US Dollar is on the verge of flipping a coin on what it will do next from a technical point of view. Looking at both a daily and weekly chart, the DXY is trading at very crucial supportive levels that, once snapped, offer ample room for more downturn. This means a substantially weaker US Dollar in several currency pairs. All eyes on the PMI data this afternoon if it can support the DXY or continue its decline.
The DXY is right at the 200-day SMA near 103.62, and will need to have a daily close above it in order to reassure that the same 200-day SMA is valid as support. Look for a further recovery bounce towards the 100-day SMA near 104.20 with preferably a break and close above. Should the DXY be able to close and open above it later this week, look for a return to the 55-day SMA near 105.71 with 105.12 ahead of it as resistance into next week.
The 200-day SMA will try to play its role again as a crucial pivotal supportive level against any downturn. Should the index snap this level again, the psychological 100.00 level comes into play. With a very slim economic calendar and US trading desks closed, there is room for a potential big downturn.
US Dollar FAQs
The US 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 found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
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 stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the 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 in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker 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 from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Read the full article here