- The US Dollar on the back foot at the beginning of a holiday-shortened week due to Thanksgiving.
- President-elect Donald Trump has nominated Scott Bessent for the role of Treasury Secretary.
- The US Dollar Index falls below 107.00 and is looking for support.
The US Dollar (USD) fades by nearly 1% at the start of the week after President-elect Donald Trump confirmed his nomination for Scott Bessent over the weekend for the Treasury Secretary in his upcoming cabinet. Bessent is considered a fiscal hawk, targeting a budget deficit of 3% of GDP by 2028 while indicating that he is backing tariff and tax cut plans. Investors seem to be taking this nomination as mildly positive as it eases some concerns regarding the impact of Trump’s fiscal plans.
The US economic calendar is facing a bit of an odd week with the public holiday on Thursday for Thanksgiving. All US data for Thursday and Friday has been moved to Wednesday, with the Personal Consumption Expenditures (PCE) for October, the second estimate of the third quarter US Gross Domestic Product (GDP) and the weekly jobless claims as most influential data points. A rather soft start for this Monday with the Chicago Fed National Activity Index for October and the Dallas Fed Manufacturing Business Index for November due.
Daily digest market movers: All dust settles
- Monday’s calendar kicks off at 13:30 GMT, with the Chicago Fed National Activity Index for October. No forecast is available, and the previous month’s number stood at -0.28.
- The Dallas Fed Manufacturing Business Index for November will follow a bit later at 15:30 GMT. There isn’t any consensus forecast either, and the October reading was at -3.
- Equities are broadly in the green across the globe. Japanese indices already closed off higher on the day, near 1% gains on average. European equities and US futures are in a positive tone, up around 0.50% on average.
- The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 56.1%. A 43.9% chance is for rates to remain unchanged.
- The US 10-year benchmark rate trades at 4.431%, sliding further away from the high printed two weeks ago at 4.50%.
US Dollar Index Technical Analysis: Trump’s pick could have killed of the DXY raly
The US Dollar Index (DXY) eased somewhat during the Asian trading session on the back of President-elect Donald Trump’s nomination of Scott Bessent for the Treasury position. A knee-jerk reaction could be taking place as this weakness has been fully erased and might see the DXY advance further. On the upside, 107.35 remains key before looking for any levels above 108.00.
The fresh two-year high at 108.07 seen on November 22 is the first level to beat next. Further up, the 109.00 big figure level is the next one in line to look at. The support from October 2023 at 109.36 is certainly a level to watch out for on the topside.
Support comes in around 106.52, the double top from May. A touch lower, the pivotal 105.53 (April 11 high) should avoid any downturns towards 104.00. Should the DXY fall all the way towards 104.00, the big figure and the 200-day Simple Moving Average at 103.98 should catch any falling knife formation.
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.
