- The US Dollar is entering its fourth straight day of gains.
- Reports are coming in from explosions being heard in Beirut.
- The US Dollar Index tests the upper band of its September range for a potential breakout later this Thursday.
The US Dollar (USD) trades firmly stronger again on Thursday, fuelled by safe-haven flows due to increased geopolitical tensions in the Middle East, a weaker Japanese Yen (JPY), and diminishing chances of another large interest-rate cut by the US Federal Reserve (Fed) in November.
The US Dollar already received a nudge higher this Thursday in Asian trading after new prime minister Shigeru Ishiba said on Wednesday that the economy isn’t ready for another interest-rate increase, sending the JPY lower. The turmoil in Lebanon is also underpinning the Greenback with safe-haven inflows.
The economic calendar is ready for another very full day. Besides the weekly Jobless Claims, markets brace for the S&P Global Services Purchasing Managers index and the Institute for Supply Management (ISM) September numbers.
Daily digest market movers: Tensions remain elevated
- New Japanese prime minister Shigeru Ishiba said on Wednesday the economy isn’t ready for another interest-rate increase, sending the yen lower, Bloomberg reported. Bank of Japan (BoJ) board member Asahi Noguchi was quick to comment that markets should not respond to each comment politicians make.
- There were surprising comments as well from Bank of England (BoE) Governor Andrew Bailey, who said to the Guardian newspaper that the BoE might need to start cutting soon and aggressively, Bloomberg reports.
- The US economic calendar started early with the Challenger Job Cuts data for September. Around 72,821 jobs were cut against the 75,891 layoffs in August .
- At 12:30 GMT, the weekly Jobless Claims are due, with Initial Claims set to marginally rise to 220,000 from 218,000.
- Around 13:45 GMT, the final S&P Global Services Purchasing Managers Index (PMI) for September is expected to remain unchanged from its preliminary reading of 55.4. The Composite PMI should also remain steady at 54.4.
- The Institute for Supply Management (ISM) will release its September numbers for the Services sector at 14:00 GMT:
- The headline PMI should come in a little bit higher at 51.7 against 51.5 a month earlier.
- As for the main subindexes, Employment was at 50.2 in August, New Orders stood at 53 and Prices Paid came in at 57.3.
- At 14:40 GMT, Federal Reserve Bank of Atlanta Raphael Bostic participates in a discussion with Minneapolis Fed President Neel Kashkari as part of the Opportunity and Growth Institute’s 2024 Fall Research Conference.
- European equities are still in the red, though off the lows for this Thursday. US futures are trading at a minor loss for this Thursday.
- The CME Fedwatch Tool shows a 67.4% chance of a 25 basis-point rate cut at the next Fed meeting on November 7, while 32.6% is pricing in another 50-basis-point rate cut.
- The US 10-year benchmark rate trades at 3.80%, looking to test the three-week high at 3.81%.
US Dollar Index Technical Analysis: Knocking on the door
The US Dollar Index (DXY) has made a stellar recovery this week, though be it with a bit of outside help. With the DXY now hitting the upper cap at 101.90, risk could take place that a rejection takes place, with the DXY unable to break above the September range. Ideally, the DXY would be able to remain around these levels and have the Nonfarm Payrolls number as a catalyst to either push the DXY higher or send it back lower towards the lower end of this month.
The recovery has performed well and could be facing the end of the line for now. expect this September high at 101.90 to remain the first resistance level on the upside for now. Just above there, the 55-day Simple Moving Average (SMA) at 102.09 will come in. A leg higher the chart identifies 103.18 as the very final level for this week on the upside.
On the downside, 100.62 is flipping back from resistance into support in case the DXY closes above it this Tuesday. The fresh low of 2024 is at 100.16, so a test will take place before more downside takes place. Further down, and that means giving up the big 100.00 level, the July 14, 2023, low at 99.58 comes into play.
US Dollar Index: Daily Chart
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
