US Dollar looks forward after weekend turmoil in Israel-Gaza region
- The Greenback starts its week on a high note after breaking its weekly winning streak.
- Traders run for safety as Hamas attacked Israel over the weekend in its biggest offence in two decades.
- The US Dollar Index breaks back above 106.00 and looks primed to head higher.
The US Dollar (USD) had a substantial move on Monday on the back of this weekend's events. Despite Columbus Day, the Greenback was soaring higher after it gapped up on Sunday night amidst headlines from Hamas attacking Israel with a major offensive not seen in decades. Markets are digesting the situation and are starting to flip to neutral.
With an empty economic calendar, expect this Monday’s moves to be driven by the Israel-Gaza conflict. Several headlines from world leaders and organisations like OPEC+ are driving safe havens higher. Israel is preparing for retaliation while it proclaimed that Iran is behind the attacks, with Western leaders not yet confirming or backing these findings, showing the sensitivity of the matter and the interest in Crude Oil supply out of the region.
Daily digest: US Dollar pulls back a touch
- Amidst all the headlines around Israel and Hamas, two US Federal Reserve members are due to speak this Monday: Near 13:00 GMT, Dallas Fed President Lorie Logan is due to speak. Near 16:45 GMT, Fed Governor Philip Jefferson will also speak. Comments from Lorie Logan mentioned that the Fed could be done hiking as possibly real market rates are to remain elevated.
- Israel has issued a statement saying that Iran is behind the coordinated attacks. Thus far, Western leaders have refrained from backing this statement. Meanwhile, US naval ships are on route to the region to provide support for Israel.
- Equities are down, though starting to pare losses as market participants get a grip on the situation at hand. If this recovery continues, expect to possibly even see green numbers near the end of this Monday.
- The CME Group FedWatch Tool shows that markets are pricing in a 78.9% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November.
- The benchmark 10-year US Treasury yield is closed for the US holiday. Expectations would be that yields will drop as bids for safe US bonds will soar to enormous proportions.
US Dollar Index technical analysis: Monday's gains are getting smaller
The US Dollar is remorseless in its winning streak after a squeeze on Friday snapped its winning streak, which lasted for twelve weeks. The US public holiday keeps US bond markets closed, though where it was open, it would have triggered even more safe-haven flow into the Greenback. Expect for the US Dollar Index to still remain in its uptrend and look to reboot its weekly winning streak.
The US Dollar Index opened around 106.29, with the Relative Strength Index (RSI) easing down a touch after the DXY snapped its weekly winning streak on Friday. On the topside, 107.19 is important to see if the DXY can get a daily close above that level. If this is the case, 109.30 is the next level to watch.
On the downside, the recent resistance at 105.88 should be seen as first support. Still, this barrier has just been broken to the upside, so it isn’t likely to be strong. Instead, look for 105.12 to keep the DXY above 105.00.
Dot Plot FAQs
What is the Federal Reserve “Dot Plot”?
The “Dot Plot” is the popular name of the interest-rate projections by the Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed), which implements monetary policy. These are published in the Summary of Economic Projections, a report in which FOMC members also release their individual projections on economic growth, the unemployment rate and inflation for the current year and the next few ones. The document consists of a chart plotting interest-rate projections, with each FOMC member’s forecast represented by a dot. The Fed also adds a table summarizing the range of forecasts and the median for each indicator. This makes it easier for market participants to see how policymakers expect the US economy to perform in the near, medium and long term.
When does the Federal Reserve publish the “Dot Plot”?
The US Federal Reserve publishes the “Dot Plot” once every other meeting, or in four of the eight yearly scheduled meetings. The Summary of Economic Projections report is published along with the monetary policy decision.
Why is the “Dot Plot” important for markets?
The “Dot Plot” gives a comprehensive insight into the expectations from Federal Reserve (Fed) policymakers. As projections reflect each official’s projection for interest rates at the end of each year, it is considered a key forward-looking indicator. By looking at the “Dot Plot” and comparing the data to current interest-rate levels, market participants can see where policymakers expect rates to head to and the overall direction of monetary policy. As projections are released quarterly, the “Dot Plot” is widely used as a guide to figure out the terminal rate and the possible timing of a policy pivot.
How does data in the “Dot Plot” affect the US Dollar?
The most market-moving data in the “Dot Plot” is the projection of the federal funds rate. Any change compared with previous projections is likely to influence the US Dollar (USD) valuation. Generally, if the “Dot Plot” shows that policymakers expect higher interest rates in the near term, this tends to be bullish for USD. Likewise, if projections point to lower rates ahead, the USD is likely to weaken.
Author
Filip Lagaart
FXStreet
Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.
