US Dollar small bounce as equity markets jump after opening bell
|- The US Dollar is near key levels against a few of its most important currencies.
- Main focus for this week will be on Powell and US Gross Domestic Product for Q1.
- The US Dollar Index is in a Catch-22 between two important levels.
The US Dollar (USD) is seeing a small support coming from the US trading session as equity markets open in the green and the Greenback sees most of its losing position against most currencies ease off a bit. The US Dollar trades has two outliers in its lackluster trading day with the Australian Dollar and the Chinese Yuan, both very much dependent on one another because Australia is the biggest supplier to China in terms of commodities. On most other fronts, the US Dollar is retracing a bit, coming off its peak performance of last week, making the US Dollar Index (DXY) very mixed and trading rather sideways at the moment.
This week traders will not be able to already start planning for their summer holidays as a few big events are set to take place. Big attention for the European equivalent of the US Federal Reserve’s Jackson Hole Symposium, as the European Central Bank (ECB) is organising its symposium in Syntra, Portugal. US Fed Chairman Jerome Powell will deliver two speeches on that event on Wednesday and Thursday, while markets can feast on data points like the Durable Goods on Tuesday at 12:30 GMT, the final estimate of the US Gross Domestic Product (GDP) on Thursday at 12:30 GMT and the Personal Consumption Expenditure (PCE) Price Index at 12:30 GMT on Friday.
Daily digest: US Dollar off the lows as US session favors US equities
- New York Federal Reserve President John Williams said restoring price stability is of paramount importance earlier today.
- Russian Minister of Foreign Affairs Sergej Lavrov said that Russia is investigating if Western special services were involved with the events from June 24.
- Japan's vice finance minister for international affairs Masato Kanda said that the recent FX moves have been rapid and excessive and he does not rule out any options on interventions in FX. This could point to possible FX interventions from Japan’s Finance Ministry in order to appreciate the Japanese Yen.
- US President Joe Biden announced he will deliver remarks on his Economic plan on Wednesday.
- A very light data calendar for the US on Monday, with only the Dallas Fed Manufacturing Activity Index on the docket at 14:30 GMT. Previous was at -29.1 with the expected number to come out at -26.5.
- The US Treasury is heading to markets for some short-term tenors with a 3-month, 6-month and a 2-year bond auction.
- No Fed speakers expected.
- Western Texas Intermediate (WTI) Crude Oil jumps on the back of geopolitical news over the weekend where the Wagner Group was on its way to Moscow. Chances, or at least the idea, that this chokehold war could come to an end, could help the global recovery and thus might lead in a pickup to demand on oil. Crude Oil jumped briefly to $70.11 at the start of the session but is now close to its opening price, near $69.60.
- Equities are continuing their sell-off as all indices are back in the red this Monday with Japan’s Topix closing this first trading day of the week at -0.20%. Meanwhile, European stock markets are all in the red and US equity futures are pointing to a red opening.
- The CME Group FedWatch Tool shows that markets are pricing in a 71.9% chance of a 25 basis points (bps) interest-rate hike on July 26th. The certainty of one more hike has increased as US Fed Chairman Powell remained hawkish in the recent two hearings, though markets remain reluctant to price in that second rate hike.
- The benchmark 10-year US Treasury bond yield trades at 3.72%, a touch higher from 3.67% earlier as bonds are selling again after being bid in the morning on the back of headlines out of Russia.
US Dollar Index technical analysis: Important support holds ground
The US Dollar is advancing this Monday against the Australian Dollar and the Chinese Yuan while on other fronts the Greenback is pairing back some of its gains from last week. The reason for this could be seen as that Australia is very dependent on the demand from China toward commodities and the lacklustre reopening story from China is hurting the Australian economy, making investors and traders short both currencies. This makes the US Dollar Index (DXY) very mixed as only two notable weak underperformers stand over a bulk of stronger currencies, making the DXY trading lower and testing the 55-day Simple Moving Average near 102.60 just minutes for the US trading sesion is set to kick off.
On the upside, the 100-day Simple Moving Average (SMA) briefly touched at 103.06, remains as level to break above and hold. That attempt failed last week, and could demand more conviction from the Greenback in order to head and stay above that level. Once that happens, look for 103.50 as the next key level to the upside.
On the downside, the 55-day SMA near 102.60 should normally be back into support-mode. Though, it has been chopped up quite a bit last week, so it starts to lose its importance a bit. Rather keep in mind 102.50 and 102.00 as downside supports to look for.
Dow Jones FAQs
What is the Dow Jones?
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
What factors impact the Dow Jones Industrial Average?
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
What is Dow Theory?
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
How can I trade the DJIA?
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
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