- The US Dollar trades at its highest level for this week after US economic data.
- Fed’s Bowman delivers ultra hakwish comments.
- The US Dollar index trades in the green and pops back above 105.50.
The US Dollar (USD) jumps higher in a double-whammy moment where first US Federal Reserve member Michelle Bowman came out with hawkish moments saying that a rate cut is not in the prospects, pointing to risks for higher inflation. Not much later proof gets delivered on that with Canadian inflation coming in red hot, jumping from 2.7% to 2.9%, where 2.6% was expected. At that same time, the US House Price Index jumped higher as well, from 0.0% to 0.2% increase.
On the economic front, all eyes now on the Consumer Confidence after Retail Sales last week pointed to a very sluggish consumer in the US. Additionally, two US Federal Reserve (Fed) members will take the stage and might comment on the current monetary policy stance. One element to highlight as well on the agenda is the first presidential debate on Thursday between current US President Joe Biden and former US President Donald Trump.
Daily digest market movers: Scary upbeat signals
- At 12:30 GMT, the Chicago Fed National Activity Index for May was released and came in at 0.18 from -0.26 in April.
- At 13:00 GMT, the Housing Price Index for April got released. An uptick of 0.3% was expected after rising by 0.1% in March, though the April number came in at 0.2%, which overall still points to growth in House prices.
- The Conference Board Consumer Confidence and the Richmond Fed Manufacturing Index for June will both be released at 14:00 GMT. Consumer Confidence is expected to ease to 100.00 after reaching 102.00 in May. The Richmond Manufacturing Index is expected to rise to 2 in June after the previous reading of 0.
- Two US Federal Reserve officials will make their way to the stage:
- At 11:00 GMT, Federal Reserve Governor Michelle Bowman delivered a speech about the US monetary policy and bank capital reform at the Policy Exchange UK event in London, United Kingdom. She remained very hawkish by saying hikes are still on the table if needed, and there are still too many risks for upside surprises in inflation.
- At 16:00 GMT, Federal Reserve Governor Lisa Cook delivers a speech about the US economic outlook in a luncheon at the Economic Club of New York.
- To round up the day, at 18:10 GMT, Bowman delivers pre-recorded opening remarks at the Midwest Cyber Workshop hosted by the Federal Reserve Bank of St. Louis, Chicago, and Kansas City.
- European equities set to close this Tuesday in deep red numbers while US equities are heading in the green ahead of the US opening bell.
- The CME Fedwatch Tool is backing a rate cut in September, with odds now standing at 61.1% for a 25 basis point cut. A rate pause stands at a 32.3% chance, while a 50-basis-point rate cut has a slim 6.6% possibility.
- The US 10-year benchmark rate trades at 4.24%, rather steady since the end of last week. The spread between the French and German 10-years benchmark has fallen from 0.79% to 0.74% and is easing a touch, though still the highest level in over six years.
US Dollar Index Technical Analysis: Supported for now
The US Dollar Index (DXY) is trading float on Tuesday, with some risk-off out of Europe supporting the Greenback. Expect not to see any big waves ahead of the US Opening Bell as markets are starting to struggle with how to price the possible outcome from the French snap elections on Sunday. Traders will also be looking for NVidia to see how it behaves and if it can end its recent correction.
On the upside, the first level to watch is 105.88, which triggered a rejection at the start of May and on Friday last week. Further up, the biggest challenge remains at 106.52, the year-to-date high from April 16. A rally to 107.20, a level not seen since 2023, would need to be driven by a surprise uptick in the US inflation or a sudden hawkish shift from the Fed.
On the downside, 105.52 is the first support ahead of a trifecta of Simple Moving Averages (SMA). First is the 55-day SMA at 105.23, safeguarding the 105.00 round figure. A touch lower, near 104.66 and 104.48, both the 100-day and the 200-day SMA form a double layer of protection to support any declines. Should this area be broken, look for 104.00 to salvage the situation.
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.
