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- The US Dollar trades in positive numbers on Monday after a rather sluggish start of the day.
- Upward revisions in Durable Goods release set the tone for a stronger Greenback.
- The US Dollar Index (DXY) resides just below its two-year high and could print a fresh one.
The US Dollar (USD) is climbing higher on Monday, with the US Dollar Index (DXY) very close to a fresh two-year high print. The moves comes after the US Dollar gained ground on the back of the November Preliminary Durable Goods release. As always, the actual number is less important with the big upside revision from 0.3% to 0.8% sweeping the Greenback higher.
The US economic calendar will start to settle down as of new with a few minor second-tier data points still to be released. The US Treasury still has its work cut out with several bond auctions. Meanwhile a big sigh of relief rolls through US markets after a government shutdown got averted at last minute ahead of the Christmas and New Year’s holidays.
Daily digest market movers: Durable Goods home run
- A government shutdown was averted on Friday in the very final hours. The White House announced on Saturday that US President Joe Biden had signed the legislation, which funds the government through mid-March.
- At 13:30 GMT, the Chicago Fed National Activity Index for November came in at -0.12 from -0.40 in the previous release.
- US Durable Goods saw its prelimenary November release come in at -1.1% against the previous 0.3%. Though, the US Dollar rallied on the back of that upward revision from the previous 0.3% to 0.8%. The Durable Goods reading without Cars and Transportation came in at -0.1%, coming from 0.2%.
- At 15:00 GMT, the US Consumer Confidence index for December will come out.
- The US Treasury will have its work cut out this Monday with four auctions: At 16:30 GMT, a 3-month, a 52-week and a 6-month bill will be allocated in the markets. At 18:00 GMT, a 2-year Note will be auctioned.
- Asian equities are doing quite well, ending their six-day losing streak. European equities are still looking sluggish, whereas US futures are rather flat
- The CME FedWatch Tool for the first Fed meeting of 2025 on January 29 sees a 91.4% chance for a stable policy rate against a small 8.6% chance for a 25 basis points rate cut.
- The US 10-year benchmark rate trades at 4.56%, just below the 4.59% high from last week.
US Dollar Index Technical Analysis: A fresh two-year high right at the end?
The US Dollar Index (DXY) is set for the final normal trading day before Christmas with a rather light calendar ahead. Traders will change their strategy and will likely only trade short-term moves. So, keep in mind that any moves could be short-lived and face quick profit-taking.
On the upside, a trend line originating from December 28, 2023, is acting as a moving cap. The next firm resistance comes in at 109.29, which was the peak of July 14, 2022, and has a good track record as a pivotal level. Once that level is surpassed, the 110.00 round level comes into play.
The first downside barrier comes in at 107.35, which has now turned from resistance into support. The second level that might be able to halt any selling pressure is 106.52. From there, even 105.53 could come under consideration while the 55-day Simple Moving Average (SMA) at 105.23 is making its way up to that level.
US Dollar Index: Daily Chart
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.