US Dollar going nowhere on quiet Monday ahead of NFP
- The US Dollar trades for most part in the green against major peers.
- Markets brace for quite some headline risks ahead of the US Jobs Report on Friday.
- The US Dollar Index still orbits around 104.00 though could be seen choosing direction after this week.
The US Dollar (USD) is facing a very chunky week with traders needing to be on point if they want to survive the carnage ahead. Two main elements this week will be the hearing of the US Federal Reserve Chairman Jerome Powell, who is set to face Senator Elisabeth Warren and other politicians in Congress and the US Jobs Report on Friday. Meanwhile headline flow out of the Chinese National People’s Congress and US President Joe Biden’s State of the Union could trigger some intraday volatility.
On the economic front, all eyes of course will be on the usual suspects ahead of the US Jobs Report with the ADP Nonfarm Employment number and the JOLTS Job Openings report on Wednesday. As always, no connection between ADP and Nonfarm Payrolls on Friday, though enough to create volatility besides the more than five US Fed speakers besides Jerome Powell that are due to release comments on the markets.
Daily digest market movers: Keep a close eye on the monitors this week
- Head of the Philadelphia Fed Patrick Harker is due to take the stage later this Monday around 16:00 CET.
- The US Treasury will head to markets to allocate a 3-month and a 6-month bill near 16:30 GMT.
- Japan’s Nikkei Index has breached 40,000 for the first time ever.
- Nikki Haley won the Columbia District (Washington DC) Primary, snapping the winning streak of former US President Donald Trump.
- A few elements to already note in your calendar for this week which could bear some important headline risk:
- China holds its National Party Congress from March 5 to March 11. Be on the lookout for any headlines on easing and stimulus support for Chinese markets.
- Super Tuesday is ahead as well with Primaries for both the Republicans and Democrats in 17 states.
- US President Joe Biden is due to release its State of the Union on Thursday.
- Equities are looking for direction with no real outliers to report. Only element worth mentioning in the far end of the risk spectrum is that Bitcoin is soaring near 3.5% this Monday.
- According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 97%, while chances of a rate cut stand at 3%.
- The benchmark 10-year US Treasury Note trades around 4.20%, roughly sideways seeing last week’s range.
US Dollar Index Technical Analysis: Grab your pitchforks
The US Dollar Index (DXY) enters another week of being caught between what can only be described as the pitchfork of Simple Moving Averages (SMA). On the topside the 100-day SMA (104.63) is making sure the DXY does not escape any higher, while the 55-day SMA (103.51) makes sure the Greenback does not slip back to the lower levels of 2024. This week is bearing more headline risk and events which could finally move the needle and stage a breakout either way for the DXY.
To the upside, the 100-day Simple Moving Average (SMA) near 103.94 is being well respected this Monday. Should the US Dollar be able to cross above it, to 104.60, 105.12 is the next key level to keep an eye on. One step beyond there comes 105.88, the high from November 2023. Ultimately, 107.20 – the high of 2023 – could come back into scope.
Looking down, the 200-day Simple Moving Average at 103.74 has been broken a few times recently, though it has not seen a daily close below it last week, showcasing its importance. The 200-day SMA should not let go that easily though, so a small retreat back to that level could be more than granted. Ultimately, should it lose its force, prices could fall to 103.22, the 55-day SMA, before testing 103.00.
US Dollar FAQs
What is the US Dollar?
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.
How do the decisions of the Federal Reserve impact the US Dollar?
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.
What is Quantitative Easing and how does it influence the US Dollar?
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.
What is Quantitative Tightening and how does it influence the 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.
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