Most recent artcile: US Dollar trades with mild gains after GDP revisions, PCE inflation data
- The Greenback trades flat on Wednesday morning as US Dollar bulls are licking their wounds.
- US traders can let the dust settle over surprise dovish comments and see US GDP confirm healthy economy.
- The US Dollar Index is trading in the 102-area and the RSI is getting oversold.
The US Dollar (USD) bulls are probably not a fan of the US Federal Reserve for a while after the market move on Tuesday. US Federal Reserve Christopher Waller from the board of governors, surprised markets with a very dovish statement on Tuesday, which in its turn made US yields plunge and promptly devalued the Greenback. The US Dollar lost steam in Asia trading this Wednesday morning, though it looks to be trying to get a grip as it is off the lows for now.
On the economic front the calendar is picking up in weight as this Wednesday the US Gross Domestic Product is released. With GDP jumping to 5.2%, the US economy is still in good health. A small pullback in favor of a stronger US Dollar is thus granted.
Daily digest: US GDP delivers
- Around 12:00 GMT this Wednesday kicked off with the Mortgage Bankers Association issuing its Mortgage Applications for the week of November 24th. Previous number was 3% and the new print at 0.3%.
- At 13:30 GMT the US Gross Domestic Product got released:
- The Gross Domestic Product on an annualised basis for the third quarter went from 4.9% to 5.2%.
- The Gross Domestic Product Price Index for the third quarter remained unchanged at 3.5%.
- Quarterly Personal Consumption Expenditures Prices was a touch softer from 2.9% to 2.8%.
- Wholesale Inventories for October went from 0.2% to -0.2%.
- The Fed’s beige book is expected to be issued near 19:00 GMT.
- Asian equities are not buying into the dovish comments from the Fed and are continuing their sell-off with the Hong Kong Hang Seng leading the descent; being down over 2%. European and US equities are mildly in the green.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 98.7% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December. A very slim chance of a cut is now showing.
- The benchmark 10-year US Treasury Note trades at 4.29%, another substantial leg lower after the comments from Christopher Waller from the Fed.
US Dollar Index technical analysis: Taking back some ground
The US Dollar has added another leg to its losses, making it a three day losing streak thus far. Though, some small relief could be on the horizon as US GDP numbers later this Wednesday might help to at least recoup a bit of earlier losses. Add into that reasoning the Relative Strength Index (RSI) on the daily DXY chart which is breaking into “oversold”, and some relief looks granted in this descent.
The DXY is sliding further below the 200-day Simple Moving Average (SMA), which is near 103.60. The DXY could still make it back up there, should US traders come back in the market and start buying the current dip. A two-tiered pattern of a daily close and next an opening higher would quickly see the DXY back above 104.28, with the 200-day and 100-day SMA turned over to support levels.
To the downside, historic levels from August are coming into play, when the Greenback summer rally took place. The lows of June make sense to look for some support, near 101.92, just below 102. Should more events take place that initiate further declines in US rates, expect to see possible even a near full unwind of the 2023 summer rally, heading to 100.82, followed by 100.00 and 99.41.
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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