US Dollar sees intraday gain dampening after Durable Goods print


  • The US Dollar sees its profit dampen again after Durable Goods release.
  • Markets are becoming clueless on pricing in the actual rate cut for the Fed. 
  • The US Dollar Index turns flat below 106.00 and looks unable to break above 106.00 for now. 

The US Dollar (USD) sees its recovery attempt being cut short after the US Durable Goods release. Although it was a quite good print with the actual numbers coming in above the survey numbers, the cut down revisions triggered some easing in the US Dollar and thus in the US Dollar Index (DXY). With no more data elements or catalysts on the calendar present to fuel another recovery in the DXY, the recovery attempt to head back above 106.00 will stall for this Wednesday. 

On the economic data front, traders will now start to look out for the big tech earnings from Meta after the US closing bell. For the day ahead on Thursday, the US Gross Domestic Product print and breakdown segments will be the main market moving element. For the more medium-term, coming weeks the weekly US Jobless numbers will become interesting as a slew of layoffs have been communicated from several companies that have already reported during this earnings quarter. 

Daily digest market movers: Next to GDP

  • The Indonesian Central Bank has raised its key policy rate from 6.00% to 6.25% while markets were looking for a hold or a rate cut.
  • Chinese building conglomerate Country Garden has extended all its Yuan Bonds in order to avoid a local default.
  • The US Senate has passed a $95 billion aid package for Ukraine, Israel and Taiwan.
  • USD/JPY is ticking up again to 155.00, making a new multi-decade high. Bank of America has warned in a report on Wednesday that a forex intervention might be nearby. 
  • The weekly Mortgage Bankers Application Index came in at -2.7%, from a 3.3% increase last week.
  • The preliminary Durable Goods print for March has been released:
    • Headline orders grez by 2.6%, though the previous 1.3% got slashed to 0.7%..
    • Orders without transportation, a widely followed indicator by markets, went to 0.2%, from a slashed 0.3% to only 0.1%.
  • The US Treasury is heading to markets to allocate a 5-year Note.  
  • Equities are easing a touch after the Nasdaq earlier hit 1% of gains on the back of the Durable Goods release. Europe is nearing its close and sees gains nearly all but go out the dear in some profit taking. 
  • The CME Fedwatch Tool suggests June will still be a no-change to the monetary policy rate for the Federal Reserve by 84.8%, with September bearing a 46.7% probability for a rate cut against 31.6% for unchanged. 
  • The benchmark 10-year US Treasury Note trades around 4.63%, back to the near low of this week.

US Dollar Index Technical Analysis: Main events still ahead

The US Dollar Index’s (DXY) recent rally broadly comes from the staggering US economy, which has been relentlessly printing positive economic numbers. Tuesday’s PMI numbers came in below estimates for the first time since last year, but investors seem to be taking this miss as a one-off rather than a sudden shock. Markets will want to await further confirmation in the data points from this week and possibly even next week before heading back to pricing in a rate cut for June. 

On the upside, first 105.88 (a pivotal level since March 2023) needs to be recovered again before targeting the high of April 16 at 106.52. Further up and above the 107.00 round level, the DXY Index could meet resistance at 107.35, the October 3 high. 

On the downside, 105.12 and 104.60 should also act as support ahead of the 55-day and the 200-day Simple Moving Averages (SMAs) at 104.35 and 104.05, respectively. If those two are unable to catch the falling knife price action, the 100-day SMA near 103.70 is the next best candidate. 

Banking crisis FAQs

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.

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.

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.

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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