- The US Dollar trades firmly in the green against its peers.
- Equity markets are erasing their positive start of the week.
- The US Dollar Index jumps back above 104.00 and holds on to gains during European trading session.
The US Dollar (USD) trades back in the green on Tuesday in an attempt to recoup Monday’s losses. The Greenback is rallying supported by substantial safe-haven inflows as most major equity markets are in the red. The move sparked during the Asian trading session, with the Indian Nifty index falling over 5%, as Prime Minister Narendra Modi’s victory appears to be narrower than what polls were predicting.
On the economic front, all eyes are on some important indicators that could further confirm the slightly downbeat sentiment surrounding the US economy. The main event will be the US JOLTS Job Openings report for April. Although this is a lagging number, job openings have been decreasing for several months in a row and a further decline could further confirm the end of that US exceptionalism.
Daily digest market movers: A JOLTS decline would set fire to the DXY
- Just ahead of the US session the US Dollar remains strong on the quote board against its peers, with only safe havens Japanese Yen (USD/JPY) and Swiss Franc (USD/CHF) outpacing the Greenback in the broad risk off surge that is taking place ahead of the US numbers.
- The Redbook Index for this already came out and was a touch softer at 5.8% against 6.3% last week.
- At 14:00 GMT, the JOLTS survey will be released.
- Job Openings in April are expected to fall further to 8.34 million from 8.488 million a month earlier.
- Factory Orders for April are expected to increase 0.6% in April, slowing from the 1.6% rise seen in March.
- The TechnoMetrica Institute of Policy and Politics (TIPP) will release its Economic Optimism Index for June. The index is expected to increase to 45.2 from 41.8 in May.
- Equities are falling across the globe with the more than 5% sell-off in Indian equities. European indices are down near 1%, while US equity futures are losing less than 0.50%.
- According to the CME Fedwatch Tool, Fed Fund futures pricing data suggests a 38.4% chance for keeping rates unchanged in September, against a 52.6% chance for a 25 basis points (bps) rate cut and a 8.9% chance for an even 50 bps rate cut. An interest rate hike is no longer considered an option since this week. For the upcoming meeting on June 12, futures are fully pricing in an unchanged result.
- The benchmark 10-year US Treasury Note trades around 4.35%, and trades close to the monthly low at 4.34%.
US Dollar Index Technical Analysis: JOLTS to push DXY back up?
The US Dollar Index (DXY) is seeing Dollar bulls fighting with knives between their teeth. The DXY might be popping back up above 104.00 this Tuesday, but this would happen for all the wrong reasons. Simply because equities are heading lower, the US Dollar is seeing some safe-haven flows. The recent appreciation should not be seen in correlation with the recent softening in the US economy, which could still bring more easing in the Greenback over the coming weeks and months.
On the upside, the DXY first faces the double belt of resistance in the form of the 200-day Simple Moving Average (SMA) at 104.43 and the 100-day SMA at 104.42. Next up, the pivotal level near 104.60 comes into play. Topside for now is forming around 105.00, with the 55-day SMA at 105.00 and the peak from recent weeks at 105.12.
On the downside, the Greenback is trading in that air pocket area in which the 104.00 big figure looks to be holding. Once through there, another decline to first 103.50 and even 103.00 are the levels to watch. With the Relative Strength Index (RSI) still not trading in the oversold level, more downside room is still under consideration.
Banking crisis FAQs
The Banking Crisis of March 2023 occurred when three US-based banks with heavy exposure to the tech-sector and crypto suffered a spike in withdrawals that revealed severe weaknesses in their balance sheets, resulting in their insolvency. The most high profile of the banks was California-based Silicon Valley Bank (SVB) which experienced a surge in withdrawal requests due to a combination of customers fearing fallout from the FTX debacle, and substantially higher returns being offered elsewhere.
In order to fulfill the redemptions, Silicon Valley Bank had to sell its holdings of predominantly US Treasury bonds. Due to the rise in interest rates caused by the Federal Reserve’s rapid tightening measures, however, Treasury bonds had substantially fallen in value. The news that SVB had taken a $1.8B loss from the sale of its bonds triggered a panic and precipitated a full scale run on the bank that ended with the Federal Deposit Insurance Corporation (FDIC) having to take it over.The crisis spread to San-Francisco-based First Republic which ended up being rescued by a coordinated effort from a group of large US banks. On March 19, Credit Suisse in Switzerland fell foul after several years of poor performance and had to be taken over by UBS.
The Banking Crisis was negative for the US Dollar (USD) because it changed expectations about the future course of interest rates. Prior to the crisis investors had expected the Federal Reserve (Fed) to continue raising interest rates to combat persistently high inflation, however, once it became clear how much stress this was placing on the banking sector by devaluing bank holdings of US Treasury bonds, the expectation was the Fed would pause or even reverse its policy trajectory. Since higher interest rates are positive for the US Dollar, it fell as it discounted the possibility of a policy pivot.
The Banking Crisis was a bullish event for Gold. Firstly it benefited from demand due to its status as a safe-haven asset. Secondly, it led to investors expecting the Federal Reserve (Fed) to pause its aggressive rate-hiking policy, out of fear of the impact on the financial stability of the banking system – lower interest rate expectations reduced the opportunity cost of holding Gold. Thirdly, Gold, which is priced in US Dollars (XAU/USD), rose in value because the US Dollar weakened.
