The US dollar trades sideways and falls midway through the European trading session. Although the dollar was holding good notes on Wednesday to erase this week’s losses, it saw a near-complete reversal in the final trading hour before entering the US bank holiday. With no trading in the US, Asian and European markets are sending the US dollar index down and a weekly loss seems almost inevitable.
Today is seeing a very light calendar with no US data published. From the European front, PMI figures have already been released ahead of the US PMI figures on Friday. Although European figures are still in contraction, below 50, they are rising compared to the previous since October. If the US PMI figures fall on Friday, a shift in dynamics between European and US PMIs could send the dollar further lower.
The US dollar is trading weaker and erased all of its gains made on Wednesday. The losses are large enough to push the US dollar index into the red this week. With the European PMI figures rising on Thursday and the US trading offices closed, a window of opportunity could open up another significant weakening of the US dollar this Thursday.
The indicator is at the 200-day SMA near 103.62, and will need a daily close above it in order to confirm that the same 200-day SMA is valid as support. Look forward to further rebounding towards the 100-day SMA near 104.20, preferably breaking out and closing above it. If the DXY manages to close and open above it later this week, look forward to returning to the 55-day SMA near of 105.71 with its advance at 105.12 as resistance next week.
Keep an eye out for dollar data: DXY falls and the impact of political developments
As US traders took a Thanksgiving break today, the US Dollar Index (DXY), a measure of a currency’s strength against a basket of other major currencies, fell below the 104 mark. This movement indicates a possible weekly decline for the dollar. The calm in the markets coincides with the annual holiday of the lockdown, which often leads to lower trading volumes and weak market activity.
European economic indices provided some activity in the calm market environment. Purchasing Managers’ Index (PMI) figures in Europe showed an increase from October’s lows, suggesting a potential shift in economic momentum. Investors now await the release of US PMI figures on Friday, which could further weigh on the direction of the US dollar if it points to a decline.
China’s real estate market has seen a remarkable boom, rising by almost 7%, supported by government subsidy measures. Regarding monetary policy signals, ECB member Joachim Nagel hinted that interest rates may need to stay high for a long time to prevent inflation from returning. This stance is in line with efforts by global central banks to control inflationary pressures without causing a sharp economic downturn..
The global stock market was slightly positive, with Hong Kong’s Hang Seng Index up 1%. CME Group’s FedWatch indicates market participants expect the Fed to maintain its current interest rate in December.
US government debt securities temporarily halted trading amid the holiday, with the yield on benchmark 10-year Treasury bonds at 4.40%. It is worth noting that historically, QE policies have tended to weaken the US dollar when implemented by the Federal Reserve.
US Dollar Weakens Against Canadian Dollar on Political Reservations and Oil Volatility
USD/CAD fell today, touching near 1.3680, as market sentiment shifted due to the prospect of the Fed raising interest rates further. Analysts attribute the weak stance towards the US dollar to a combination of factors, including recent economic indicators and market expectations.
The University of Michigan’s recent consumer confidence index pointed to higher inflation expectations among consumers, which would typically support a stronger dollar due to the expectation of a more aggressive monetary policy. However, this has been balanced by other economic reports indicating a possible slowdown.
On Friday, revised inflation perceptions were clear as US Treasury yields rose. However, despite this rise, durable goods orders in the United States saw a significant decline, while jobless claims fell to 209,000 just before Thanksgiving when markets were closed. The decline in the number of jobless claims can be seen as a positive sign for the labor market; however, this does not seem to support the case for further rate hikes.
The Canadian economic landscape is further complicated. While the Canadian dollar found some support from these broader market movements, its gains were culminated in lower oil prices. West Texas Intermediate (WTI) crude prices fell amid uncertainty surrounding the OPEC+ meeting, which could have a significant impact on resource-linked currencies such as the Canadian dollar.
Investors are now turning their attention to the upcoming economic data for further direction. Retail sales figures from Canada are awaited with interest, which could affect the strength of the Canadian dollar. Meanwhile, in the US, the post-Thanksgiving Global PMI figures will be closely watched to gauge business activity levels and economic health.
Dollar Analysis: Expectations of Future Interest Trends
My analyst’s choice for the fourth quarter was to sell the US dollar (DXY) in any rally approaching the 107 level. The dollar index rose at the beginning of October, reaching 107.36 before retreating, and apart from the brief rally at the beginning of November, the US dollar fell back to its last low in late August.
Since we published the article above, the US price market has completely eliminated any chance of raising US interest rates again, despite the cautious words of Fed Chairman Jerome Powell. Looking at the Fed’s latest prospect on the Chicago Mercantile Exchange, the market is pricing its first 25 basis point rate cut in May next year, followed by two or three more similar cuts by the end of the year.
In what may be a thing of the past, I would once again look to sell any rise in the US dollar. Looking at the daily chart, the DXY is currently trading at 103.75 and is sandwiched between the Fibonacci levels of 50% retracement at 103.41 and 38.2% retracement at 104.34. The 200-day SMA currently provides support at 103.50. If the DXY indicator managesFrom a breakout above 104.34, and possibly even testing the previous horizontal resistance at 104.66, this could provide room for expansion in a short position. A break in support may cause the DXY to eventually retest the level of 102.49 (61.8% Fibonacci retracement). As before, it is difficult to sell at highs, so the stop loss around 105.00 should be used.
The 200-day SMA will try to play its role again as a crucial pivot support level against any pullback. If the indicator breaks this level again, the psychological level of 100.00 will come into effect. With a very small economic calendar and the closure of US trading desks.
