- The DXY Index hovers around 101.90, presenting its lowest level since August.
- Despite positive Retail Sales Figures from November, the US Dollar continues to weaken.
- The Greenback is suffering the aftermath of Wednesday’s Fed announcement.
- The yield on the 2-year US bond declined to its lowest since June.
The US Dollar (USD) declined to 101.80, its weakest position since August. The Federal Reserve's (Fed) unexpected hint at three rate cuts for 2024 weighs heavily on US Treasury yields and the Greenback.
In the last meeting of the Fed in 2023, the bank welcomed cooling inflation figures, and the revised Dot Plot suggests Fed governors aren't seeing any rate hike in 2024. Additionally, they forecasted 75 basis points of easing. This means that the market expectations are aligning with the bank's stance, which is cheered by markets as it fuels risk-on flows.
Daily Market Movers: US Dollar loses ground, despite positive Retail Sales figures, US yields in multi-month lows
- The Fed hinted at a triad of rate cuts expected for 2024, which applied pressure on the US dollar.
- The November Retail Sales report by the US Census Bureau indicated a 4.1% (YoY) increase, a stronger performance than the 2.2% increase of the previous month.
- The US Department of Labor reported Initial Jobless Claims for the week ending on December 9 at 202K, slipping beneath the 220K consensus and previous 221K figures, signaling an unexpectedly healthy job market.
- Currently, US bond yields are decreasing, with rates at 4.35% for the 2-year yield, 3.87% for the 5-year yield, and 3.91% for the 10-year yield.
- The CME FedWatch Tool projections suggest that markets foresee rate cuts as early as March 2024.
Technical Analysis: DXY Index bears take the lead, indicators dive to negative zone
The Moving Average Convergence Divergence (MACD) histogram shows rising red bars, a signal typically associated with bearish momentum, while the Relative Strength Index (RSI) is nearing oversold conditions, adding further confirmation that the bears command price movement.
Furthermore, examining the Simple Moving Averages (SMAs), the index is positioned below the 20, 100 and 200-day SMAs, indicating a dominant bearish bias in the larger context. This suggests that despite the oversold RSI hinting at temporary relief, the overall selling pressure remains strong, and the bears continue to dictate the price action.
Support levels: 101.50, 101.30, 101.00.
Resistance levels: 103.45 (20 and 200-day SMA bearish crossover), 104.50 (100-day SMA), 104.70.
Risk sentiment FAQs
What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
What are the key assets to track to understand risk sentiment dynamics?
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
Which currencies strengthen when sentiment is "risk-on"?
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
Which currencies strengthen when sentiment is "risk-off"?
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.