- The Greenback picks up its sell-off where it left off on Friday.
- US yields are plunging as markets gear up for a possible US recession at hand.
- The US Dollar Index is looking for support and might need to drop another 1% at a minimum.
The US Dollar (USD) is selling-off again on Monday, continuing its slide lower from past Friday. The disappointing US jobs report shows the US economy is stuttering, while delinquencies on mortgages, loans and credit card bills are soaring. Several traders are starting to cash in on their long USD trade, which means selling pressure is taking over.
On the economic data front a very calm week lies ahead overall with not many pivotal or focal points. If we need to name one, then best chances are jobless numbers on Thursday, which could either confirm or disprove the sudden rise in the rate of unemployment printed on Friday in the US jobs report. Overall a very calm start of the week with no real data points to mention.
Daily digest: US Dollar retreats further
- Headlines around Israeli troops surrounding Gaza city, and Egypt finally opening up its borders for refugees, are making headlines.
- The Ukraine-Russia war is at a stalemate with no advances of any kind on both fronts. It appears that talks could be underway in this environment as no party is able to claim victory.
- The US Treasury is hitting the markets with a debt auction this Monday, placing a 3-month and a 6-month Bill auction near 16:30 GMT.
- Later this Monday near 19:00 GMT, the Loan Officer Survey will be published.
- Asian equities are soaring, with all indices in the region up above 1%. European futures are looking for clues and are flat, with US equity futures unphased.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 90.2% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December.
- The benchmark 10-year US Treasury yield trades at 4.61%, retreating further after its peak above 5% a few weeks ago.
US Dollar Index technical analysis: US Dollar drops lower
The US Dollar is no longer speculators’ favoured trade this year. The change of heart comes after the US jobs report was a bit of a disappointment with a less positive number than had been estimated and the unemployment index rising to 3.9%. Investors are taking their money and are getting out of the US Dollar Index ahead of any possible announcement from the US Federal Reserve that it might start to cut its policy rates, in order to avoid or ease any possible recessions in the US economy and growth.
The DXY is looking for support near 105.00, though it is struggling to find it. Any shock events in global markets could spark a sudden turnaround and favour safe-haven flows into the US Dollar. A return first to 105.51 would make sense, near the 55-day Simple Moving Average (SMA). A break above could mean a test on the descending trend line near 105.88.
On the downside, a big air pocket is developing and could see the DXY drop to 103.98, near the 100-day SMA, before finding ample support. In case it turns into a falling knife, 103.52 with the 200-day SMA could act as circuit break. If that one snaps as well, the road is open to head to 101.00.
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
