Market Data 
- The US Dollar extends its decline on Tuesday with US markets coming out of a long weekend.
- All eyes are on Fed speakers and chunky Treasury issuances across the curve.
- The US Dollar Index eases further below 104.50 and starts to look bleak.
The US Dollar (USD) are holding on to losses heading into the official start of this week for US markets, coming back again after a long weekend due to the Memorial Day bank holiday on Monday. The Greenback eases as a risk-on sentiment sets the scene for the beginning of the week, topped up with comments from Japanese Finance Minister Shun’ichi Suzuki. Suzuki warned against speculators that are propping up for more Japanese Yen devaluation by saying that Japan is ready to take more, bigger and firmer steps in order to have a stable exchange rate, Bloomberg reported.
On the economic data front, the US Treasury will auction four bond issuances in several maturities across the yield curve, and three US Federal Reserve (Fed) speakers are set to make comments on Tuesday.
Daily digest market movers: US session wakes up
- At 12:55 GMT, the weekly Redbook Index for the week ending on May 24 is set to be released. The previous week’s result came in at 5.5%.
- The March Housing Price Index will be released at 13:00 GMT. February’s reading was 1.2%, and a decline to 0.5% is expected. Should the Index fall into contraction, substantial US Dollar easing could materialize.
- At 14:00 GMT, May’s Conference Board Consumer Confidence will be released, with the previous number at 97.0 and 96.0 forecasted.
- At 14:30 GMT, the Dallas Fed will release its Manufacturing Business Index for May. April’s data showed a contraction to -14.5, with an improvement to -12.5 forecasted for May.
- The US Treasury is having four bond auctions on Tuesday:
- At 15:30 GMT, both a 3-month and a 6-month bill are to be allocated.
- At 17:00 GMT, a 2-year and a 5-year note are to be issued.
- Three Fed speakers are lined up on Tuesday:
- Federal Reserve Governor Michelle Bowman already issued comments on Tuesday morning during Asian hours. She iterated it continues to remain important that the Fed sticks to reducing its balance sheet.
- Federal Reserve Bank of Minneapolis President Neel Kashkari will speak at 13:55 GMT in a panel at the Barclays-CEPR International Monetary Policy Forum.
- Around 17:00 GMT, Federal Reserve Bank of San Francisco President Mary Daly participates in a panel discussion about Artificial Intelligence (AI) and the Economy at the Federal Reserve Bank of San Francisco, together with Federal Reserve Governor Lisa Cook.
- All equities are falling back to flat with minor gains or losses on the quote board.
- The CME Fedwatch Tool is pricing 99.1% for no change in the policy rate for June. September futures are in a stalemate, where it is a neck-and-neck race with 48.4% chances for keeping rates unchanged against 46.4% chances for a 25 basis points (bps) rate cut and 4.7% chances for even 50 bps rate cut. A marginal 0.4% price in an interest rate hike.
- The benchmark 10-year US Treasury Note trades around 4.45% in a tight range ahead of the US opening bell.
US Dollar Index Technical Analysis: Bounce or break?
The US Dollar Index (DXY) is playing a dangerous game on Tuesday, testing important support levels and retreating for a third day in a row. Ahead of the US opening bell, the DXY is testing the 200-day Simple Moving Average (SMA) at 104.41. With the 100-day SMA very close, at 104.32, much room opens up for a nosedive should markets start to unwind their Dollar long positions.
On the upside, the DXY index needs to reclaim key levels it lost last week: the 55-day Simple Moving Average (SMA) at 104.88 and the 105.00 big round level. Further up, the following levels to consider are 105.12 and 105.52.
On the downside, the 200-day SMA at 104.41 and the 100-day SMA around 104.32 are the last line of defence. Once that level snaps, an air pocket is placed between 104.30 and 103.00. Should the US Dollar decline persist, the low of March at 102.35 and the low from December at 100.62 are levels to consider.
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.
