Market Data 
- The US Dollar flat after US Retail Sales data for December release.
- US yields try to recover after steep correction on Wednesday
- The US Dollar Index (DXY) floats around 109.00 and does not seem to break away in any direction.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is consolidating around 109.00 on Thursday after US Retail Sales and weekly Jobless Claims got released. The data distorted a clear sense of direction for the DXY with upside revisions in Retail Sales while the actual number was below expectations. The Los Angeles wild fires meanwhile is pushing the Jobless Claims higher.
Next up as final data point for this Thursday is the National Association of Home Builders (NAHB) Housing Market Index for January. Nothing market moving expected there. Though the elevated rate regime could impact sentiment in the housing market in a negative way.
Daily digest market movers: Blurry picture
- The US Retail Sales and the weekly Jobless Claims were released:
- The monthly Retail Sales fell to only 0.4%, lower than the 0.6% expected for December, compared to 0.7% the previous month. That same 0.7% got revised up to 0.8%.
- Initial Jobless Claims for the week ending January 10 came in higher to 217,000, while the previous 201,000 got revised to 203,000.
- The Philadelphia Fed Manufacturing Survey for January came in at 44.3, beating the -5. The previous -16.4 got revised up as well -10.9.
- At 15:00, the NAHB Housing Market Index for January will be released. The expectation is that it will tick down to 45, compared to 46 in the previous reading.
- Equities are turning flat on the day, marginally positive.
- The CME FedWatch Tool projects a 97.3% chance that interest rates will be kept unchanged at current levels in the January meeting. Expectations are for the Federal Reserve (Fed) to remain data-dependent with uncertainties that could influence the inflation path once President-elect Donald Trump takes office on January 20.
- The US 10-year yield is trading around 4.657%, over 2.5% lower than its peak performance this week on Tuesday at 4.807%.
US Dollar Index Technical Analysis: Difficult trajectory
The US Dollar Index (DXY) takes a step back and is either on the verge of salvaging this rally or at risk of a harsh correction. Although markets might be rejoicing, mixed inflation data perceived as disinflationary will not have the Federal Reserve committing to anything at any time. Inflation might still elope and start turning hot and higher again, which would mean much more upside for the DXY, with markets being currently wrong-footed based on just one ‘mild’ disinflationary report at the start of the year.
On the upside, the 110.00 psychological level remains the key resistance to beat. Further up, the next big upside level to hit before advancing any further remains at 110.79. Once beyond there, it is quite a stretch to 113.91, the double top from October 2022.
On the downside, the DXY is testing the ascending trend line from December 2023, which currently comes in around 108.95 as nearby support. In case of more downside, the next support is 107.35. Further down, the next level that might halt any selling pressure is 106.52, with interim support at the 55-day Simple Moving Average (SMA) at 107.10.
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.
