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    US Dollar retreats further ahead of Durable Goods data

    Source Fxstreet
    Mar 26, 2024 12:00
    • The US Dollar retreats mildly on Tuesday for a second day in a row.
    • Traders are looking forward to the Durable Goods release on Tuesday. 
    • The US Dollar Index steadies above 104.00 as some downward pressure builds up. 

    The US Dollar (USD) weakens for a second consecutive day on Tuesday ahead of the first big batch of economic data releases this week, with Durable Goods orders as the main event. Markets will welcome clear data after US Federal Reserve members have contradicted each other, with calls for three and only one interest-rate cut. This dispersion could make the Fed less credible at a moment when markets seem to be challenging the broader stance of the US central bank, a scenario that could lead to erratic moves for the USD. 

    Durable Goods orders will take away the bulk part of attention from traders. Still, Consumer Confidence and the Richmond Fed Manufacturing Survey deserve as well a fair bit of attention. Traders will want to see confirmation if the Fed is right or wrong about interest-rate cuts and the health of the US economy and trade that adjustment. 

    Daily digest market movers: PBoC at it again

    • The People’s Bank of China (PBoC) fixed the Chinese Renminbi substantially stronger for a second day in a row against the US Dollar, triggering a lower USD/CNH. 
    • Durable Goods orders data for February are set to be released at 12:30 GMT:
      • The headline Durable Goods Orders are set to increase 1.3%, rebounding from the 6.2% decline seen in January.
      • Durable Goods orders without Transportation should expand by 0.4%, recovering from the 0.4% decrease a month earlier.
      • As always, the revisions from January could weigh as well on the market reaction.
    • At 12:55 GMT, the US Redbook will come out, with the previous number at 3.4%.
    • The Housing Price Index for January will be released at 13:00 GMT. In December, house prices increased 0.1% on month.
    • US Consumer Confidence for March will be released at 14:00 GMT.
    • Together with the US Consumer Confidence, the Richmond Fed Manufacturing Index for March will be released. The previous number was at -5, signaling contraction.
    • Equities are rather flat across the board, with minor gains and losses across regions. US equity futures are mildly in the green. 
    • According to the CME Group’s FedWatch Tool, expectations for the Fed’s May 1 meeting are at 92% for keeping the fed funds rate unchanged, while chances of a rate cut are at 8%.
    • The benchmark 10-year US Treasury Note trades around 4.24%, around the high for this week.

    US Dollar Index Technical Analysis: Setting sail back to 104

    The US Dollar Index (DXY), which gauges the value of the Greenback against a basket of foreign currencies, trades a touch softer nearing 104.00. The projected easing in the Greenback is taking place as investors look for an equilibrium between the dovish Fed and the rather challenging markets on that possible outcome. The truth will probably be somewhere in the middle, which means the DXY could retreat a few points to challenge 104.00 and snap below this barrier by the end of the week. 

    The DXY is still eyeballing a pivotal level near 104.60, where last week’s rally peaked.  Further up, 104.96 remains the first level in sight. Once above there, the peak at 104.97 from February comes into play ahead of the 105.00 region, with 105.12 as the first resistance. 

    Support from the 200-day Simple Moving Average (SMA) at 103.73, the 100-day SMA at 103.49, and the 55-day SMA at 103.64 are getting a fresh chance to show their importance. The 103.00 big figure looks to remain unchallenged for now after the decline after the Fed meeting last week got turned around way before reaching it. 

     

    US Dollar FAQs

    The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD 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 away.

    The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly 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 may lower interest rates, which weighs on the Greenback.

    In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat 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 predominantly from financial institutions. QE usually leads to a weaker US Dollar.

    Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

     

    Disclaimer: For information purposes only. Past performance is not indicative of future results.
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