Market Data 
- The US Dollar is turning flat for this Thursday after a four day -winning-streak.
- Traders brace to hear from the ECB and their rate cut projections with Germany stuttering.
- The US Dollar Index broke above a key level on looks to be on its way to 104.00.
The US Dollar (USD) adds to gains for a fifth consecutive day when looking at the US Dollar Index (DXY), which can be seen as the benchmark for the Greenback’s performance. China’s Housing Minister said on Thursday that the country will open a 4 trillion Yuan (CNY) funding to support its domestic housing market, a quite lower number than the initial 6 trillion Yuan communicated on Monday, and adds to momentum for the United States (US) former President Donald Trump to take more lead in the polls in the run-up to the November 5 Presidential Elections day.
The US economic calendar is full on Thursday. Besides the usual weekly Jobless Claims, Retail Sales and several leading indicators will be released about the US economy and activity. In case that is not enough, the European Central Bank (ECB) is set to deliver another 25 basis point (bps) rate cut according to consensus, with the main question if ECB President Christine Lagarde dares to deliver a hawkish rate cut while Europe’s economic engine, Germany, is severely stuttering.
Daily digest market movers: ECB and Lagarde on deck
- The US calendar kicks off at 12:30 GMT with a bulk release of data:
- The weekly Jobless Claims:
- Initial Claims for the week ending on October 11 are expected to remain stable at 258,000, as the previous week.
- The Continuing Claims for the week ending on October 4 are expected to increase to 1.87 million from the prior 1.861 million.
- IT will be interesting to see how the hurricanes in Florida and the Gulf region have influenced the claims numbers.
- September Retail Sales:
- The monthly headline Retail Sales is expected to rise by 0.3%, compared to 0.1% in the previous reading.
- The monthly Retail Sales, excluding cars and transportation, should grow at a steady pace of 0.1%.
- The Philadelphia Fed Manufacturing Survey for October is expected to tick up to 3.0, coming from 1.7 in September.
- The weekly Jobless Claims:
- At 13:00 GMT, Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee delivers welcoming remarks at the Fifth Annual Exploring Career Pathways in Economics and Related Field Conference.
- At 13:15 GMT, the Fed releases the Industrial Production data for September, which is expected to shrink by 0.2% against the growth of 0.8% seen in August.
- At 14:00 GMT, the National Association of Home Builders (NAHB) will release its monthly Housing Market Index for October. The expectation is for an uptick to 43 against the 41 from September.
- The European Central Bank (ECB) will release its rate decision at 12:15 GMT, followed by a press conference where ECB President Christine Lagarde will deliver a speech and take Q&A around 12:45 GMT.
- Equities in Asia are seeing investors being disappointed with a tepid reaction to China’s supportive measures on its domestic housing sector. Both Japan’s and China’s equity indices have closed in the red. European equities are doing better with hopes from traders for a rate cut from the ECB, while US futures are trading flat to mildly higher.
- The CME Fed rate expectation for the meeting on November 7 shows a 92.1% probability of a 25 bps rate cut, while the remaining 7.9% is pricing in no rate cut. Chances for a 50 bps rate cut have been fully priced out.
- The US 10-year benchmark rate is trading at 4.04% after having flirted with a break below 4% on Wednesday.
US Dollar Index Technical Analysis: Trump already won?
The US Dollar Index (DXY) is rallying with more and more headlines and media channels, starting to pick up on a possible Trump win in the US presidential elections in November. It looks like that trading desks are starting to hedge for that event, with the risk that the US Dollar will continue to rally into the event and can only reverse once it is done, no matter who won. Thus, a big attention point is that the DXY might become a “buy the rumour, sell the fact” event in the coming weeks.
A firm resistance is ahead at 103.79, which aligns with the 200-day SMA. Above that, there is a small gap before hitting the pivotal level at 103.99 and the 104.00 big figure. Should Trump further lead in the polls, a rapid swing up to 105.00 and 105.53 could be on the cards.
On the downside, the 100-day SMA at 103.20 and the pivotal level at 103.18 are now acting as support and should prevent the DXY from falling lower. With the Relative Strength Index in overbought territory, a test on this level looks granted. Further down, the 55-day SMA at 101.84 and the pivotal level at 101.90 should avoid further downside moves.
US Dollar Index: Daily Chart
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
