- The US Dollar is recovering after opening up in the red on Monday.
- A very full US economic calendar ahead, with the US Jobs Report as dessert.
- The US Dollar index retreats to the mid-105.00 level.
The US Dollar (USD) sees markets starting to digest headlines after the first round of the French government elections took place, with several currencies starting to fade from their opening positions on Monday. A clear victory for Marine Le Pen and her far-right party Rassemblement National (RN), though a stalemate could be at hand. None of the three major parties – Marine Le Pen’s far-right Rassemblement National, Emmanuel Macron’s centric Ensemble Citoyens, and Jean-Luc Mélenchon’s far-left Nouveau Front Populaire – have reached their projected results as of the latest polls. Both the far left and the far right parties have reached less positive results, as the latest polls on Friday suggested, while Macron’s party was able to salvage the situation a bit, though still coming in third, which means no one holds a majority and a stalemate could be at hand.
On the US economic calendar front, US traders will have little time to digest the French election news, with already some nice data points ahead on Monday as the Institute for Supply Management is gearing up for its June numbers on Manufacturing. Additionally, the European Central Bank (ECB) is holding its European Jackson Hole version, with its annual symposium in Sintra, Portugal, with many comments and interviews expected from several central bank members from across the globe.
Daily digest market movers: Upticks might do the trick
- The annual three-day European Central Bank Symposium starts in Sintra, Portugal, and lasts until Wednesday. ECB president Christine Lagarde will deliver a speech and opening remarks. More headlines are expected throughout these three days, with several central bank members and policymakers to be interviewed and making comments.
- At 13:45 GMT, S&P Global will release June’s Purchasing Managers Index (PMI) for the Manufacturing sector’s final reading. The previous reading was 51.7, and no changes are expected.
- At 14:00 GMT, the Institute for Supply Management will release June’s PMI Index:
- Manufacturing PMI is seen heading to 49 from 48.7.
- The New Orders Index was at 45.4 in May, with no forecast available for June.
- The Employment Index was previously at 51.1, with no consensus view available.
- The Prices Paid Index is seen declining to 55.9 from 57.
- Equities are roaring and rallying higher with this French election gridlock result going into next week’s voting. Certainly, in Europe, all indices are popping higher by over 1%, while US equity futures are enjoying the positive spillover effect.
- The CME Fedwatch Tool is broadly backing a rate cut in September despite recent comments from Federal Reserve (Fed) officials. The odds now stand at 57.8% for a 25-basis-point cut. A rate pause stands at a 35.7% chance, while a 50-basis-point rate cut has a slim 6.5% possibility.
- The US 10-year benchmark rate trades near 4.44%, which is a fresh high for this Monday.
US Dollar Index Technical Analysis: Risk looming
The US Dollar Index (DXY) is facing headwinds from its biggest contributor in the Index, the Euro, which accounts for 57.6% of the total package. The appreciation of the Euro is pushing the Greenback in the fences already on early Monday trading. With the sword of Damocles still hanging over the US Dollar, from possible intervention from the Ministry of Finance from Japan, the DXY could be gearing up for one of its biggest corrections for this year.
On the upside, the pivotal level of 105.89 must be regained first. The DXY failed to stay above that level last week. Once above there, marching above the red descending trend line in the chart below at 106.26 and the peak of April at 106.52 are the two main resistances ahead of a fresh nine-month high. That would be reached once 107.35 is being broken to the upside.
On the downside, 105.53 is the first support ahead of a trifecta of Simple Moving Averages (SMA). Next down is the 55-day SMA at 105.25, safeguarding the 105.00 round figure. A touch lower, near 104.73 and 104.45, both the 100-day and the 200-day SMA form a double layer of protection to support any declines together with the green ascending trendline from last December.
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.
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