- The US Dollar off to a positive start on Monday after a rather sluggish start of the day.
- Upward revisions from the preliminary November Durable Goods release set the tone for a stronger Greenback.
- The US Dollar Index (DXY) has the two-year high in reach.
The US Dollar (USD) is rallying on Monday, with the US Dollar Index (DXY) close to a fresh two-year high print. The moves comes after the US Dollar gained ground on the back of the November Preliminary Durable Goods release. As always, the actual number is less important with the big upside revision from 0.3% to 0.8% sweeping the Greenback higher.
The US economic calendar will start to settle down as of new with a few minor second-tier data points still to be released. The US Treasury still has its work cut out with several bond auctions. Meanwhile a big sigh of relief rolls through US markets after a government shutdown got averted at last minute ahead of the Christmas and New Year’s holidays.
Daily digest market movers: US Treasury hard at work
- A government shutdown was averted on Friday in the very final hours. The White House announced on Saturday that US President Joe Biden had signed the legislation, which funds the government through mid-March.
- At 13:30 GMT, the Chicago Fed National Activity Index for November came in at -0.12 from -0.40 in the previous release.
- US Durable Goods saw its prelimenary November release come in at -1.1% against the previous 0.3%. Though, the US Dollar rallied on the back of that upward revision from the previous 0.3% to 0.8%. The Durable Goods reading without Cars and Transportation came in at -0.1%, coming from 0.2%.
- At 15:00 GMT, the US Consumer Confidence index for December will come out.
- The US Treasury will have its work cut out this Monday with four auctions: At 16:30 GMT, a 3-month, a 52-week and a 6-month bill will be allocated in the markets. At 18:00 GMT, a 2-year Note will be auctioned.
- Asian equities are doing quite well, ending their six-day losing streak. European equities are still looking sluggish, whereas US futures are rather flat
- The CME FedWatch Tool for the first Fed meeting of 2025 on January 29 sees a 91.4% chance for a stable policy rate against a small 8.6% chance for a 25 basis points rate cut.
- The US 10-year benchmark rate trades at 4.56%, just below the 4.59% high from last week.
US Dollar Index Technical Analysis: Tail risks at the end
The US Dollar Index (DXY) is set for the final normal trading day before Christmas with a rather light calendar ahead. Traders will change their strategy and will likely only trade short-term moves. So, keep in mind that any moves could be short-lived and face quick profit-taking.
On the upside, a trend line originating from December 28, 2023, is acting as a moving cap. The next firm resistance comes in at 109.29, which was the peak of July 14, 2022, and has a good track record as a pivotal level. Once that level is surpassed, the 110.00 round level comes into play.
The first downside barrier comes in at 107.35, which has now turned from resistance into support. The second level that might be able to halt any selling pressure is 106.52. From there, even 105.53 could come under consideration while the 55-day Simple Moving Average (SMA) at 105.23 is making its way up to that level.
US Dollar Index: Daily Chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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