November 20, 2024
- The US dollar recovered after a wobble on Tuesday.
- Markets favor risk-on ahead of much-anticipated Nvidia earnings.
- The US dollar index traded in the 106.50 area, still looking for support to bounce off of.
The US dollar (USD) recovered on Wednesday, with the DXY index trading near 106.5, as market sentiment After the US closing bell, Nvidia introduced risk ahead of the earnings release. Overnight in the US session, markets shrugged off initial concerns about the escalating situation between Russia and Ukraine after Russian President Vladimir Putin said he was open to a peace deal brokered by President-elect Donald Trump.
D US Economic Calendar Wednesday is still empty except for weekly mortgage application data. The focus shifts Federal Reserve (Fed), four Fed speakers set to release comments for markets That December interest rate cut remains stalled, with traders uncertain whether the Fed will stick to previous promises to cut. rate Again in December.
DAILY DIGEST Market movers: Calm down
- Geopolitical headlines in Ukraine and Russia point to easing tensions after Russian President Vladimir Putin confirmed he would be open to ceasefire talks with President-elect Donald Trump, Reuters reported.
- At 12:00 GMT, the Mortgage Bankers Association (MBA) releases weekly mortgage applications. This week’s number came in at 1.7% compared to last week’s number, which was an increase of 0.5%.
- Around 15:00 GMT, Federal Reserve Vice Chair for Supervision Michael Barr testifies before the House Financial Services Committee in Washington DC about oversight of prudential regulators.
- Federal Reserve Governor Lisa Cook delivers a speech on economic outlook and monetary policy at the University of Virginia Department of Economics in Charlottesville, Virginia at 16:00 GMT.
- Around 17:15 GMT, Federal Reserve Governor Michelle Bowman delivers a speech on “Agency Policymaking Procedures” at the Forum Club of Palm Beach in West Palm Beach, Florida.
- Federal Reserve Bank of Boston President Susan Collins delivers remarks and participates in a conversation at an event hosted by the Ford School in Ann Arbor, Michigan at 21:00 GMT.
- Equities have shrugged off a drag on geopolitical headlines since Tuesday and positive sentiment ahead of Nvidia’s earnings release after the US closing bell. European stocks are up with US equity futures following suit.
- The CME FedWatch tool is pricing in another 25 basis points (bps) rate cut by the Fed at its December 18 meeting to 59.1%. A 40.9% chance for rates to remain unchanged. While the rate-cut scenario is the most likely, traders have significantly reduced some rate-cut bets compared to a week ago.
- The US 10-year benchmark rate traded at 4.42%, moving further away from Friday’s high of 4.50%.
US Dollar Index Technical Analysis: Bearish
US dollar index (DXY) moved up slightly to the mid-106.00 region on the daily chart. Markets have let the dust settle on geopolitical headlines since Tuesday and are eagerly awaiting Nvidia earnings later this Wednesday. As the Trump trade begins to close, the DXY may need to find lower support to attract buyers.
After a brief test and a strong rejection last Thursday, the 107.00 round level remains in play. A new annual high has already been reached at 107.07, which is a stable level to lose. Further higher, a break of 107.35 could lead to a new two-year high.
On the downside, a new set of supports is coming live. The first level is 105.93, the close since November 12. A touch lower, key 105.53 (April 11 high) should avoid any downside towards 104.00.
US Dollar Index: Daily Chart
USD FAQs
The United States dollar (USD) is the official currency of the United States and the ‘de facto’ currency of a significant number of other countries where it is in circulation alongside local notes. It is the world’s most traded currency, accounting for 88% of all global foreign exchange transactions, or an average of $6.6 trillion traded daily. Information From 2022. After World War II, the US dollar took over from the British pound as the world’s reserve currency. For most of its history, the US dollar was backed by gold, until the Bretton Woods agreement in 1971 when the gold standard went off.
The single most important factor affecting the value of the US dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: achieve price stability (control inflation) and promote full employment. The primary tool for achieving these two goals is adjusting interest rates. When prices are rising too fast and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the unemployment rate is too high, the Fed can cut interest rates, which weighs on the greenback.
In extreme circumstances, the Federal Reserve may print more dollars and implement quantitative easing (QE). QE is a process by which the Fed significantly increases the flow of credit to a stuck financial system. This is a non-standard policy measure when credit dries up because banks won’t lend to each other (for fear of counterparty default). It is a last resort when simply lowering the interest rate is not likely to achieve the desired result. It was the Fed’s weapon of choice to deal with the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more dollars and using them to buy US government bonds, mainly from financial institutions. QE usually leads to a weaker US dollar.
Quantitative tightening (QT) is the reverse process in which the Federal Reserve stops buying bonds from financial institutions and does not reinvest principal from maturing bonds in new purchases. This is generally positive for the US dollar.
