US Dollar tries to break hurdle after ECB's Lagarde paints not so positive picture for Eurozone
- The US Dollar pops and makes its rally into a five day winning-streak.
- Traders hear Christine Lagarde say that the Eurozone growth outlook is more to the downside, after a 25 basis point rate cut from the ECB.
- The US Dollar Index broke above a key level on looks to be on its way to 104.00.
The US Dollar (USD) adds to gains for a fifth consecutive day when looking at the US Dollar Index (DXY), which can be seen as the benchmark for the Greenback’s performance. China’s Housing Minister said on Thursday that the country will open a 4 trillion Yuan (CNY) funding to support its domestic housing market, a quite lower number than the initial 6 trillion Yuan communicated on Monday, and adds to momentum for the United States (US) former President Donald Trump to take more lead in the polls in the run-up to the November 5 Presidential Elections day.
The US economic calendar is halfway through with Jobless Claims sliding lower to 241,000 from 260,000, while US Retail Sales came in at 0.4%, beating the 0.3% estimate and the previous 0.1% from August. Meanwhile, the European Central Bank (ECB) has delivered another 25 basis point (bps) rate cut in accordance to consensus. The ECB President Christine Lagarde painted a not so positive picture on the Eurozone's outlook where apparently wages are still growing, but growth is more heading to the downside.
Daily digest market movers: Lagarde just sank the Euro
- The US calendar has kicked off at 12:30 GMT with a bulk release of data:
- The weekly Jobless Claims:
- Initial Claims for the week ending on October 11 came in at 241,000, lower than the 260,000 from the previous week.
- The Continuing Claims for the week ending on October 4 came in at 1.867 million, lower than the expected 1.870 million.
- September Retail Sales:
- The monthly headline Retail Sales grew by 0.4%, compared to the 0.3% expectation and the 0.1% in the previous reading.
- The monthly Retail Sales, excluding cars and transportation grew by 0.5%, compared to the 0.1% expectation and the 0.2% in the previous reading.
- The Philadelphia Fed Manufacturing Survey for October jumped to 10.3, beating the 3.0 expectating, coming from 1.7 in September.
- The weekly Jobless Claims:
- At 13:00 GMT, Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee delivers welcoming remarks at the Fifth Annual Exploring Career Pathways in Economics and Related Field Conference.
- At 13:15 GMT, the Fed releases the Industrial Production data for September, which is expected to shrink by 0.2% against the growth of 0.8% seen in August.
- At 14:00 GMT, the National Association of Home Builders (NAHB) will release its monthly Housing Market Index for October. The expectation is for an uptick to 43 against the 41 from September.
- The European Central Bank (ECB) has decided to cut its policy rate by 25 basis points. President Christine Lagarde was very bearish on the Eurozone and said she only sees more downside for growth with very limited upside ahead.
- Both European and US equities are sprinting higher on the ECB rate cut and the upbeat US data.
- The CME Fed rate expectation for the meeting on November 7 shows a 92.1% probability of a 25 bps rate cut, while the remaining 7.9% is pricing in no rate cut. Chances for a 50 bps rate cut have been fully priced out.
- The US 10-year benchmark rate is trading at 4.09% after having flirted with a break below 4% on Wednesday.
US Dollar Index Technical Analysis: ECB rate gap sees US rates sprint away
The US Dollar Index (DXY) is rallying with more and more headlines and media channels, starting to pick up on a possible Trump win in the US presidential elections in November. It looks like that trading desks are starting to hedge for that event, with the risk that the US Dollar will continue to rally into the event and can only reverse once it is done, no matter who won. Thus, a big attention point is that the DXY might become a “buy the rumour, sell the fact” event in the coming weeks.
A firm resistance is ahead at 103.79, which aligns with the 200-day SMA. Above that, there is a small gap before hitting the pivotal level at 103.99 and the 104.00 big figure. Should Trump further lead in the polls, a rapid swing up to 105.00 and 105.53 could be on the cards.
On the downside, the 100-day SMA at 103.20 and the pivotal level at 103.18 are now acting as support and should prevent the DXY from falling lower. With the Relative Strength Index in overbought territory, a test on this level looks granted. Further down, the 55-day SMA at 101.84 and the pivotal level at 101.90 should avoid further downside moves.
US Dollar Index: Daily Chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Author
Filip Lagaart
FXStreet
Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.
