US Dollar trades sideways with US bond and futures markets closed for business

  • The US Dollar trades flat on Monday with US traders enjoying the long weekend.
  • Markets are digesting geopolitical headlines out of Gaza and the broader Middle East. 
  • The US Dollar Index tests 104 again and could slide below with the US session no present. 

The US Dollar (USD) is digesting some geopolitical news that came out over the weekend and this Monday with tension being pushed back on high alert on Gaza and the Middle East. Israel has released an ultimatum for Hamas to give up the last hostages, otherwise a big military operation will take place before the Shabbat on March 8. Iran meanwhile reported that the attacks last week on one of its major Gas pipelines is the work of Israel, the New York Times reported. 

On the economic data front, there are no numbers from the US and no US Federal Reserve speakers either due to the public holiday. Fast forward to later this week and on Wednesday traders will move the markets on the publication of the US Fed’s most recent Minutes. Add Thursday with important US Purchase Manager Indices prints and although overall the calendar looks light, there could be some substantial movements later this week in the US Dollar Index. 

Daily digest market movers: Flat line

  • European Vice President Josep Borrell confirmed that the EU is now actively patrolling in the Red Sea. 
  • The New York Times reported that Iran has proof that Israel has blown up one of Iran’s most key Gas pipelines last week. 
  • Yemen’s Houthis have targeted a ship in the Gulf of Aden. 
  • Europe is kicking off its EU election campaign with Ursula von der Leyen announcing she would like to run for a second term. 
  • The European Commission has slammed Apple with a fine over its Music Streaming business. The claim is allegedly Apple is breaking EU law over access to its music streaming services. The fine could amount to 500 million Euro. 
  • Equities are welcoming back China which is opening up again after its week-long close due to Chinese New Year. Markets are looking for direction this Monday with a very mixed view and no real outliers to report. US equity futures are trading, though with limited volumes and no opening bell ahead. 
  • The CME Group’s FedWatch Tool is now looking at the March 20th meeting. Expectations for a pause are 89.5%, while 10.5% for a rate cut. 
  • The benchmark 10-year US Treasury Note trades will not be moving this Monday with the US markets closed. The close on Friday was at 4.28%.

US Dollar Index Technical Analysis: no FOMO needed this Monday

The US Dollar Index (DXY) is holding its ground above 104 in a very calm start of the week. With US traders not present in the markets, expect very thin volumes to occur, on a Monday where volumes are often already rather on the low side compared to the rest of the week. Rather look for the middle of this week for things to finally come alive, while traders look for clues on the timing of that first rate cut, which is now hanging between June and July. 

Should the US Dollar jump to 105.00 on Friday, 105.12 is a key level to keep an eye on. One step beyond there comes 105.88, the high of November 2023. Ultimately, 107.20 – the high of 2023 – could even come back into scope, but that would be when several inflation measures are coming in higher than expected for several weeks in a row. 

The 100-day Simple Moving Average looks to be holding for now, though pressure is building on it to snap, near 104.18, so the 200-day SMA near 103.70 looks more solid. Should that give way, look for support from the 55-day SMA near 103.14.

Banking crisis FAQs

What happened during the Banking Crisis?

The Banking Crisis of March 2023 occurred when three US-based banks with heavy exposure to the tech-sector and crypto suffered a spike in withdrawals that revealed severe weaknesses in their balance sheets, resulting in their insolvency.
The most high profile of the banks was California-based Silicon Valley Bank (SVB) which experienced a surge in withdrawal requests due to a combination of customers fearing fallout from the FTX debacle, and substantially higher returns being offered elsewhere.

How did Silicon Valley Bank spread the banking liquidity crisis?

In order to fulfill the redemptions, Silicon Valley Bank had to sell its holdings of predominantly US Treasury bonds. Due to the rise in interest rates caused by the Federal Reserve’s rapid tightening measures, however, Treasury bonds had substantially fallen in value. The news that SVB had taken a $1.8B loss from the sale of its bonds triggered a panic and precipitated a full scale run on the bank that ended with the Federal Deposit Insurance Corporation (FDIC) having to take it over.The crisis spread to San-Francisco-based First Republic which ended up being rescued by a coordinated effort from a group of large US banks. On March 19, Credit Suisse in Switzerland fell foul after several years of poor performance and had to be taken over by UBS.

What was the impact of the Banking Crisis on the US Dollar?

The Banking Crisis was negative for the US Dollar (USD) because it changed expectations about the future course of interest rates. Prior to the crisis investors had expected the Federal Reserve (Fed) to continue raising interest rates to combat persistently high inflation, however, once it became clear how much stress this was placing on the banking sector by devaluing bank holdings of US Treasury bonds, the expectation was the Fed would pause or even reverse its policy trajectory. Since higher interest rates are positive for the US Dollar, it fell as it discounted the possibility of a policy pivot.

What was the impact of the Banking Crisis on the price of Gold?

The Banking Crisis was a bullish event for Gold. Firstly it benefited from demand due to its status as a safe-haven asset. Secondly, it led to investors expecting the Federal Reserve (Fed) to pause its aggressive rate-hiking policy, out of fear of the impact on the financial stability of the banking system – lower interest rate expectations reduced the opportunity cost of holding Gold. Thirdly, Gold, which is priced in US Dollars (XAU/USD), rose in value because the US Dollar weakened.

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