The US Dollar Faces Pressure as Investors Shift Investments
- Recession fears resurface in the US amidst weak economic data
- US Dollar Index nears a 15-month low, potential drop below 100.00
The US Dollar (USD) has remained relatively flat in the early European session following a decline against major Asian currencies overnight, notably the Chinese Yuan (CNY) and the Indian Rupee (INR). This movement comes as investors redirect their capital from US markets to Chinese equities in response to a significant stimulus package introduced by the Chinese government on Tuesday.
Looking ahead, the economic calendar is light for the day, with minimal impactful data releases. However, market participants will keep a close eye on Federal Reserve (Fed) Governor Adriana Kugler’s speech on the US economic outlook at the Harvard Kennedy School in Cambridge, Massachusetts. The focus will then shift to the US Q2 Gross Domestic Product (GDP) report and a speech by Fed Chairman Jerome Powell on Thursday.
Daily Digest of Market Movers: Anticipate a Period of Stability
- Asian markets show positive sentiment following China’s policy stimulus measures, leading to reduced demand for the Dollar.
- The Mortgage Bankers Association (MBA) reported an 11.0% increase in weekly mortgage applications compared to 14.2% in the previous week.
- New Home Sales data is expected to show a slight decline to 0.700 million units in August from the previous 0.739 million.
- The US Treasury will auction a 5-year Note later in the day.
- Federal Reserve Governor Adriana Kugler will discuss the US economic outlook at the Harvard Kennedy School in Cambridge, Massachusetts.
- Global equity markets, except Chinese equities, are in negative territory, with Chinese stocks gaining for the second consecutive day due to stimulus measures.
- CME Fedwatch Tool indicates a 41.6% probability of a 25-basis-point rate cut and a 58.4% chance of a 50-basis-point cut at the next Fed meeting on November 7.
- The US 10-year benchmark rate hovers at 3.73%, retracting from an earlier attempt to reach a monthly high.
US Dollar Index Technical Analysis: Realities Unveiled
The US Dollar Index (DXY) is teetering near a 15-month low following recent data releases and China’s stimulus actions, which have further weakened the Greenback. The upcoming key data releases on Thursday and Friday, particularly the US Q2 GDP report, could serve as catalysts for potential movements in the DXY.
Key levels to watch for on the upside include 101.90 and 103.18, with the 55-day Simple Moving Average (SMA) at 102.42. Further upside targets are less clear but could extend to the 100-day SMA at 103.61 and the 200-day SMA at 103.76 before the significant 104.00 level.
On the downside, immediate support lies at 100.22, followed by the July 14, 2023, low at 99.58. A breach of these levels may lead to further weakness, with potential downside targets near 97.73 based on early 2023 levels.
US Dollar Index: Daily Chart
US Dollar FAQs
The US Dollar (USD) serves as the official currency of the United States and is widely used in various countries worldwide. It is the most traded currency globally, representing a significant portion of foreign exchange turnover. The value of the US Dollar is heavily influenced by monetary policy decisions made by the Federal Reserve (Fed), which aims to maintain price stability and full employment through interest rate adjustments.
In times of economic stress, the Fed may resort to unconventional measures like quantitative easing (QE) to stimulate the economy, potentially weakening the US Dollar. On the contrary, quantitative tightening (QT) involves reducing the Fed’s bond holdings and can strengthen the Dollar.