- The US Dollar gives away its earlier gains in the aftermath of Retail Sales
- European sovereign bond spreads ease, with French markets partially recovering from last week’s losses.
- The US Dollar index trades below 105.50, facing significant support and resistance levels nearby.
The US Dollar (USD) trades back to flat after US Retail Sales are turning into a disaster. Not only did every segment miss its estimation or consensus call, the revisions are painting an even more ugly picture when it comes to consumer sentiment. With consumers feeling the pain and no longer willing to pay an arm or a leg for goods they want, question will be how long it will take before this will start hitting company earnings and overall economic indicators on the labor side.
On the US economic data front, Retail Sales are out the door now with around the corner Industrial Production and an army of US Federal Reserve speakers. Although markets have grown accustomed to the hawkish stance of the Fed. Any sudden easing would or could mean more easing in the Greenback ahead.
Daily digest market movers: That is just ugly
- US Retail Sales for May came in blood red as A Nightmare on Elm Street:
- Headline Retail Sales came in at 0.1% for April, missing the 0.2% consensus call. Previous number got revised from 0 to -0.2%.
- Retail Sales without transportation fell into contraction from 0.2% to -0.1%. That same 0.2% got revised down to -0.1%.
- The April numbers already gave the US Dollar a punch, and the revisions triggered a second wave of some US Dollar easing.
- At 12:55 GMT, the US Redbook Index for the second week of June is expected. The previous release was at 5.5%.
- At 13:15 GMT, Industrial Production and Capacity Utilization data for May will be released. Industrial Production is expected to increase by 0.3% after being unchanged a month earlier. Capacity Utilization seen heading to 78.6% from 78.4%.
- An army of Fed speakers will have comments for the markets:
- Federal Reserve Bank of Richmond President Thomas Barkin speaks at 14:00 GMT about the US economic outlook at a Market News International webcast.
- Federal Reserve Bank of Boston President Susan Collins will speak at 15:40 GMT at the 2024 annual meeting and 10th year anniversary of the Lawrence Partnership.
- Federal Reserve Governor Adriana Kugler participates in a conversation about the US economic outlook and monetary policy at the Peterson Institute for International Economics at 17:00 GMT.
- At the same time Federal Reserve Bank of Dallas President Lorie Logan participates in a conversation about the current state of the US economy at the Headliners Speaker Series in Austin.
- Freshly appointed Federal Reserve Bank of St. Louis President Alberto Musalem delivers a speech and participates in a moderated Q&A about the US economic outlook and monetary policy at the CFA Society St. Louis Luncheon near 17:20 GMT.
- The cherry on the cake will be Federal Reserve Bank of Chicago President Austan Goolsbee, who participates in a monetary policy discussion at the 2024 Marshall Forum on the University of Chicago campus at 18:00 GMT.
- Equity are starting to wobble again after the US Retail Sales. US equities are starting to retreat with only the Nasdaq holding above the 0% line.
- The CME FedWatch Tool shows a 40.4% chance of the Fed interest rate remaining at the current level in September. Odds for a 25-basis-points rate cut stand at 55.0%, while a very slim 4.6% chance is priced in for a 50-basis-points rate cut.
- The benchmark 10-year US Treasury Note trades higher for the week, near 4.24%.
US Dollar Index Technical Analysis: Retail Sales massacre
The US Dollar Index (DXY) is seeing its safe-haven inflows abate on Tuesday with markets dialling down on their bets of political turmoil in Europe after the election outcome. With sovereign bond spreads in the Eurozone easing from their distressed levels, it looks like the Greenback might need to look somewhere else for support. Fed speakers will be holding the key as their comments might move the DXY should the hawkish stance prevail even after those softer inflation numbers.
On the upside, no big changes to the levels traders need to watch out for. The first is 105.52, where the DXY is trading around this Tuesday, which is a barrier that held during most of April. The next level to watch is 105.88, which triggered a rejection at the start of May and will likely play its role as resistance again. Further up, the biggest challenge remains at 106.51, the year-to-date high from April 16.
On the downside, the trifecta of Simple Moving Averages (SMA) is still playing support. First is the 55-day SMA at 105.11, safeguarding the 105.00 figure. A touch lower, near 104.57 and 104.47, both the 100-day and the 200-day SMA are forming a double layer of protection to support any declines. Should this area be broken, look for 104.00 to salvage the situation.
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.
