- Dollar returns to red after weekly Jobless Claims print.
- Traders are concerned about forward positioning.
- The US dollar index is flirting with breaking below 104.
The US dollar (USD) broke out of its tight range for this Thursday, flirting with the previous low on Tuesday. Traders are looking for further clues and confirmation of whether the Fed is truly done, with bets mounting on when the Fed will strike first. Meanwhile, yields are falling lower and stocks are surging, meaning the dollar-to-currency differential story is losing ground.
The calendar for this Thursday is very busy and all eyes are on the US Federal Reserve speakers: at least five members of the Board of Governors are expected to speak. Add some lighter data points that could confirm and reassure traders that Fed tourism is really done and some further devaluation of the Greenback may be at hand. In the background, the clock on the US debt ceiling is ticking, no concrete solution is close yet.
Daily Roundup: US Dollar Retreats on Rising Jobless Claims
- The US Senate has approved a temporary funding bill to avert a government shutdown.
- US President Joe Biden met with Chinese President Xi Jinping on Wednesday at the historic Filoli mansion south of San Francisco: The news appears to be largely positive, with the two superpowers agreeing to reopen lines of communication and China to regulate exports of chemicals used in the production of opioids. fentanyl. However, differences with Taiwan remain a sore point.
- At least five members of the US Federal Reserve are scheduled to speak this Thursday:
- Lisa D. Cook, a member of the Federal Reserve Board of Governors, was scheduled to speak at 11:00 GMT. No subtitles to report for this speech.
- Cleveland Fed President Loretta Mester said the Fed is comfortable with where rates are at the moment and that the Fed remains data-driven.
- New York Fed President John Williams was scheduled to speak at 2:25 p.m., though no comment on the policy outlook.
- Federal Reserve Governor Christopher Waller will take the stage around 3:30 p.m.
- Loretta Mester will be speaking for the second time this Thursday around 5:00 pm along with Lisa Cook.
- Around 13:30 GMT, the weekly Jobless Claims report had:
- Initial jobless claims rose to 231,000 from a revised 218,000.
- Continuing claims rose from a revised 1,833,000 to 1,865,000.
- At the same time, the import/export price index was published:
- The monthly export price index for October increased from a revised 0.5% to -0.59%.
- The annual export price index was -4.1% and headed for -4.9%.
- The monthly import price index for October increased from the revised 0.4% to -0.8%.
- The annual import price index was -1.7% and fell to -2%.
- The latest information at 13:30 GMT was the Philadelphia Fed Manufacturing Survey for November, which changed from -9 to -5.9.
- Industrial production for the month of October fell from the revised 0.1% to -0.6%.
- The National Association of Home Builders (NAHB) housing market index for November will be released at 15:00 GMT: A steady number of 40 is expected.
- The last important number this Thursday will be the Kansas Fed manufacturing activity index for November. The previous number was -8, no forecast was expected.
- Stocks are undergoing some profit-taking after a two-day rally. The Hang Seng fell over 1%, while Japan managed to hold losses to less than 1%. European stocks open slightly in the red, while US stock futures see the Nasdaq leading the decline.
- CME’s FedWatch Tool shows markets are counting on a 100% chance, up from 85.7% on Tuesday morning, that the Federal Reserve will leave interest rates unchanged at its December meeting.
- The benchmark 10-year U.S. Treasury yield is trading at 4.46% and is starting to rise a little, bit by bit.
US Dollar Index Technical Analysis: Hopes for an early dampening recovery
The US dollar is trying to continue its recovery from Tuesday’s collapse. However, the recovery is not as fast as expected, as only baby steps are seen in the US Dollar index (DXY). It looks like traders are unwinding their long US dollar positions and only a significant catalyst in favor of the dollar will help push the DXY back to 105 and above.
DXY was able to bounce off the 100-day simple moving average (SMA) near 104.20. Expect it to rebound from there with 105.29, the November 6 low, as the market level where the DXY should attempt to close above this week. From there, the 55-day SMA at 105.71 is another price point on the upside that the USD bulls need to recover before they start thinking about more USD strength to come into play.
Traders have been warned that when the US Dollar Index falls below the 55-day SMA, a large air pocket is opening that could see the DXY decline significantly. That materialized on Tuesday. For now, the 100-day SMA is trying to hold at 103.62, although the 200-day SMA is a much better candidate for support. If this level was even substantially breached, a long-term sell-off could begin with the DXY falling between 101.00 and 100.00.
Frequently asked questions about central banks
Central banks have a key mandate that ensures price stability in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant increase in the prices of the same goods means inflation, a constant decrease in the prices of the same goods means deflation. The task of the central bank is to keep demand in line with the adjustment of its base rate. For the largest central banks, such as the US central bank (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
The central bank has one important tool at its disposal to get inflation higher or lower, and that is by adjusting its reference base rate, commonly known as the interest rate. At pre-announced times, the central bank will issue a statement with its monetary policy rate and provide additional justification for either keeping it or changing (lowering or increasing) it. Local banks will adjust their savings and loan rates accordingly, which in turn will make it harder or easier for people to cash in on their savings or for businesses to borrow and invest in their businesses. When a central bank raises interest rates substantially, it is called monetary tightening. When it lowers its benchmark rate, it is called monetary easing.
The central bank is often politically independent. Members of the central bank’s policy board go through a series of panels and hearings before being appointed to a policy board seat. Each member of this board often has certain beliefs about how the central bank should control inflation and subsequent monetary policy. Members who want a very loose monetary policy with low rates and cheap borrowing to support the economy substantially, while settling for inflation slightly above 2%, are called “doves”. Members who prefer to see higher rates as a reward for saving and want to keep an eye on inflation are called “hawks” and won’t rest until inflation is at or just below 2%.
There is usually a chairman or president who leads each meeting, needs to build consensus among the hawks or doves, and has the final say when votes are split to avoid a 50-50 tie on whether policy should be adjusted. The Chairman will deliver speeches, which can often be watched live, communicating the current monetary situation and outlook. The central bank will try to enforce its monetary policy without causing sharp swings in rates, stocks or its currency. All members of the central bank will direct their stance on the markets ahead of the policy meeting. A few days before the policy meeting, until the new policy is communicated, members are prohibited from speaking publicly. This is called the blackout period.