The US Dollar Dominates Markets
- The US Dollar strengthens against most major G20 currencies.
- US equities are falling as markets adjust to the new Fed interest-rate outlook.
- The US Dollar index continues its October rally in a critical technical area.
Today, the US Dollar (USD) is on a rapid rise fueled by uncertainty surrounding the upcoming US presidential election and a safe-haven inflow due to the poor performance of equities. Additionally, US bonds are being sold off, leading to a surge in US rates, with the 10-year benchmark rate jumping from 4.07% on Monday to 4.23% on Wednesday. As the November 5 election approaches, the Dollar’s momentum is expected to increase further.
While the economic calendar is light today, market watchers are focusing on US earnings reports from major companies like Tesla, IBM, Boeing, and Coca-Cola. Meanwhile, China’s indices are the only bright spot in the sea of red in the equity markets, with US equity futures struggling to recover ahead of the US Opening Bell.
Daily Market Movers
- The Mortgage Bankers Association reported a fourth consecutive week of contraction in Mortgage Applications.
- Federal Reserve Governor Michelle Bowman will speak at the Eight Annual Fintech Conference.
- Existing Home Sales for September are expected to show a surge to 3.9 million units.
- Federal Reserve Bank of Richmond President Thomas Barkin will address community colleges at a conference.
- The CME Fedwatch Tool predicts a 25 basis point rate cut with an 88.9% probability for the upcoming Fed meeting.
- The US 10-year benchmark rate continues to rally at 4.23%.
US Dollar Index Technical Analysis
The US Dollar Index (DXY) is rallying and is poised to end October on a strong note. Traders are positioning themselves for the upcoming US elections and the Federal Reserve rate decision in what is expected to be a pivotal week. The DXY has broken above 104.00 and is approaching key resistance levels.
Key Levels to Watch:
- Above 105.00, look out for resistance at 105.53 and 105.89.
- Support is strong at the 200-day SMA around 103.81.
- If the 200-day SMA breaks, watch for support at the 100-day SMA at 103.19 and the pivotal 103.18 level.
For a detailed technical analysis, refer to the chart below:
Risk Sentiment FAQs
Understanding risk sentiment can help investors navigate volatile markets. Here are some frequently asked questions:
- What is “risk-on” and “risk-off”?
In a “risk-on” market, investors are optimistic and willing to buy risky assets. In a “risk-off” market, investors play it safe and opt for less risky assets. - How do markets react during “risk-on” and “risk-off” periods?
Stock markets rise during “risk-on” periods, while safe-haven assets like Gold and Bonds perform well in “risk-off” periods. - Which currencies are affected by risk sentiment?
Currencies of commodity-exporting nations like AUD, CAD, and NZD rise in “risk-on” markets, while safe-haven currencies like USD, JPY, and CHF strengthen in “risk-off” environments.
By understanding risk sentiment, investors can better manage their portfolios in changing market conditions.
Analysis:
The US Dollar’s current rally and strength against major currencies indicate a shift in market sentiment towards safe-haven assets. As equities falter and bond yields rise, investors are turning to the Dollar for stability ahead of key events like the US elections and the Fed rate decision. Understanding risk sentiment and market movements can help investors make informed decisions and protect their portfolios during uncertain times.