US Dollar starts gobbling up last week's losses, though still a long way to go

The US Dollar in the green inthe US trading session.
All eyes this week will be on the US CPI numbers ahead of the Fed interest-rate decision next week.
The US Dollar Index trades just below 103.00, with technical risk of more downside to come.

The US Dollar (USD) is recovering a bit from last week's steep sell off after several jobs-related data pointed to the US labor market starting to roll over. For this week, the Greenback is set for a very firm data-driven regime this week as there will be no US Federal Reserve (Fed) officials speaking. This is because the Fed’s blackout period has started ahead of the rate decision and Chairman Jerome Powell’s speech next week.

Looking ahead on the economic calendar front, focal points this week are Tuesday, Thursday and Friday.. On the top of the board there is the US Consumer Price Index (CPI), to be released on Tuesday. Any decline in inflation will be enough for markets to bring back forward those heavily anticipated rate cuts from the Fed. Add to that the US Producer Price Index (PPI) numbers and Retail Sales for Thursday, and the Greenback could be trading in a whole other ballpark by Friday.

Daily digest market movers: Risk Off triggers some inflow

Some comments from former President Donald Trump, saying that a 10% tariff would bring back companies to the US, while US households would receive tax cuts and other supportive actions.
China, Iran and Russias Navy forces will conduct military drills from March 11th to 15th.
No ceasefire deal was reached over the weekend, which means Muslims in Gaza are entering the Ramadan fasting with little supply.
Portuguese elections were a surprise with a swing to the right, though a coalition remains unclear. With more European countries facing an election year, a swing to the right could mean more protectionism on the trade front.
Japanese equity markets took it on the chin on Monday after a revision of Gross Domestic Product (GDP) numbers showed that Japan made it just barely out of recession, casting doubts over an upcoming interest-rate hike..
The US Treasury Department is having its hands full this Monday with no less than three auctions: Near 15:30 GMT both a 3-month and a 6-month bill will be auctioned. At 17:00 GMT, a longer 3-year note will be placed in the markets.
European equities are nearing the closing bell and are flirting with a 1% negative close. US indices are on the backfoot as well, though around 0.50% in negative territory.
According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 96%, while chances of a rate cut stand at 4%.
The benchmark 10-year US Treasury Note trades around 4.05%, the lowest level in over a week.

US Dollar Index Technical Analysis: Long road to recover

The US Dollar Index (DXY) is entering a period when it can trade as the Fed says it acts: data-driven. With Fed speakers silent for over a week, markets will need to settle with data points being released throughout the week. This increases the possibility of whipsaw moves should several data points fall in line with a certain bias, with the DXY pricing already the outcome of the Fed meeting next week. Traders will also look for technical levels to break or hold to assess the situation, making the charts this week even more important.

On the upside, the first reclaiming ground is at 103.29, the 55-day Simple Moving Average (SMA), and at the 200-day SMA near 103.71. Once broken through, the 100-day SMA is popping up at 103.76, so a bit of a double cap in that region. Depending on the catalyst that pushes the DXY upwards, 104.96 remains the key level on the topside.

The DXY is trading a bit in nomad's land, with not really any significant support levels nearby. More downside looks inevitable with 102.00 up next, which bears some pivotal relevance. Once through there, the road is open for another leg lower to 100.61, the low of 2023.

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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