US Dollar steady as dust settles of JOLTS decline

Most Recent Article : US dollar advances, bolstered by strong ISM services PMI

  • The US Dollar holds on to gains despite lower JOLTS numbers.
  • Traders briefly sent the Greenback weaker after a substantial decline in JOLTS numbers.
  • The US Dollar Index jumps to 104.00, snapping crucial resistance levels. 

The US Dollar (USD) appreciates significantly in the European trading session on Tuesday after rating agency Moody’s downgraded China’s credit outlook from stable to negative due to rising debt.  More US Dollar Strength comes from European Central Bank (ECB) member Isabel Schnabel, who said she is surprised by the substantial decline in inflation and no more interest-rate hikes are further needed. 

On the economic front, the calendar is starting to pick up some steam towards the US Jobs Report on Friday. The decline in JOLTS Job openings briefly rattled markets a touch, though the Greenback is back where it was before the number came out. The numbers from the Institute of Supply Management did not hold any surprises and were final readings.  

Daily digest: Nothing to see here

  • Rating agency Moody’s has issued a negative outlook for China, a downgrade from the previous “stable” label. 
  • European Central Bank (ECB) board member Isabel Schnabel said that she is surprised by the shere speed of decline in inflation in the Eurozone, and no further hikes should be needed. Schnabel is considered to be a hawk, which makes these comments even more important and signals a change in the stance and outlook of the ECB. 
  • At 13:55 GMT, the Redbook Index was released and went from 6.3% to 3%.
  • At 14:45 GMT, the S&P Global Purchasing Managers Indices remained unchanged:
    1. The Services PMI stayd as expected stable at 50.8.
    2. The Composite unchanged at 50.7.
  • Chunky batch of data at 15:00 GMT:
    1. The Institute  for Supply Management (ISM) was released for final readings of November:
    2. Headline Services PMI for November went from 51.8 to 52.7.
    3. Services Employment Index for October unchanged at 50.2.
    4. Services New Orders Index for October remained unchanged at 55.5.
    5. Services Prices Paid for October was at 58.6. and went to 58.3
    6. JOLTS Job Openings for October went from 9.35 million to 8.7 million.
  • Equities are bleeding severely this Tuesday with nearly all Asian equity indices down over 1%, with China’s leading indices down more than 2%. European equities trying to turn the tide and are mildly in the green. US Futures are still looking for direction. 
  • The CME Group’s FedWatch Tool shows that markets are pricing in a 97.5% chance that the Federal Reserve will keep interest rates unchanged at its meeting next week.  
  • The benchmark 10-year US Treasury Note steadies at 4.21%. Yields in Europe, on the other hand, are falling. 

US Dollar Index technical analysis: Two tails

The US Dollar trades around 103.74 and has the next level, 104.00, in sight. Elements like the sudden shift to no-hikes from the ECB widens further the rate differential between the US Dollar and other currencies. In this favourable context,  the US Dollar Index (DXY) is rallying as well. With a few landmark resistances being challenged and broken, more room for Dollar strength is in the pipeline. 

The DXY has performed a daily close on Monday and an opening just above the 200-day Simple Moving Average (SMA), which is near 103.58. The DXY could still make it further up, should employment data trigger rising US yields again. A two-tiered pattern of a daily close lower followed by 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 102.00. Should more events take place that initiate further declines in US rates, expect to see a near-full unwind of the 2023 summer rally, heading to 100.82, followed by 100.00 and 99.41.

Interest rates FAQs

What are interest rates?

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.

How do interest rates impact currencies?

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.

How do interest rates influence the price of Gold?

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.

What is the Fed Funds rate?

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.

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