- The US Dollar consolidates ahead of a possible breakthrough on Ukraine.
- Traders brace for headlines that could emerge from Riyadh this week.
- The US Dollar Index (DXY) is stuck in the mid 106-range and is looking for direction.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is going nowhere this Monday and consolidates last week’s losses, trading flat at around 106.80 at the time of writing on Monday. The United States (US) economy is no longer an outlier, with several data points and the blood-red January Retail Sales data released last week pointing to slower economic growth. All eyes this week will be on Riyadh, in Saudi Arabia, where US and Russian officials are set to meet ahead of a meeting between US President Donald Trump and Russian President Vladimir Putin.
The economic calendar is very calm this week in the run-up to the S&P Purchasing Managers Index (PMI) data on Friday. Although the US bond market is closed due to the President’s Day bank holiday, the Federal Reserve (Fed) has three policymakers lined up to speak on Monday.
Daily digest market movers: US Markets closed
- US bond markets are closed on Monday due to the President’s Day bank holidays.
- Traders will need to be vigilant for any headlines coming out of Riyadh, where US and Russian officials are meeting in the runup to the meeting between US President Donald Trump and Russian President Vladimir Putin to agree on a deal for Ukraine.
- At 14:30 GMT, Federal Reserve Bank of Philadelphia Patrick Harker delivers a speech on the economic outlook at the Central Banking Series Conference at the University of the Bahamas in Nassau.
- At 15:20 GMT, Fed Governor Michelle W. Bowman delivers brief remarks on the economy and bank regulation at the American Bankers Association (ABA) Conference for Community Bankers in Phoenix, Arizona.
- Closing off this Monday, at 23:00 GMT, Fed Governor Christopher J. Waller speaks on the economic outlook at the UNSW Macroeconomic Workshop in Sydney, Australia.
- Equities start off this week with some small and cautious gains. US futures are trading and are in the green as well.
- The CME FedWatch tool shows a 46.7% chance that interest rates will remain unchanged at current levels in June.
- The US 10-year yield is trading around 4.48%, and will remain closed for trading this Monday
US Dollar Index Technical Analysis: Watch out for the fine print in any deal
The US Dollar Index (DXY) is not expected to go anywhere this Monday with most US markets closed due to President’s Day. The main focus will be on headlines around Ukraine, where the question will be what kind of deal will be put on the table. Be on the lookout thus for false breaks on a peace deal being reached, with the aftermath resulting in a knee jerk reaction and seeing the DXY possibly rally from there on out.
On the upside, the previous support at 107.35 has now turned into a firm resistance. Further up, the 55-day SMA at 107.91 must be regained before reclaiming 108.00.
On the downside, look for 106.52 (April 16, 2024, high), 106.40 (100-day SMA), or even 105.89 (resistance in June 2024) as support levels. As the Relative Strength Index (RSI) momentum indicator in the daily chart shows room for more downside, the 200-day SMA at 104.93 could be a possible outcome.
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.
