US Dollar clings on to gains ahead of US Durable Goods Orders
- The US Dollar sees its profit dampen again after Durable Goods release.
- Markets are becoming clueless on pricing in the actual rate cut for the Fed.
- The US Dollar Index turns flat below 106.00 and looks unable to break above 106.00 for now.
The US Dollar (USD) sees its recovery attempt being cut short after the US Durable Goods release. Although it was a quite good print with the actual numbers coming in above the survey numbers, the cut down revisions triggered some easing in the US Dollar and thus in the US Dollar Index (DXY). With no more data elements or catalysts on the calendar present to fuel another recovery in the DXY, the recovery attempt to head back above 106.00 will stall for this Wednesday.
On the economic data front, traders will now start to look out for the big tech earnings from Meta after the US closing bell. For the day ahead on Thursday, the US Gross Domestic Product print and breakdown segments will be the main market moving element. For the more medium-term, coming weeks the weekly US Jobless numbers will become interesting as a slew of layoffs have been communicated from several companies that have already reported during this earnings quarter.
Daily digest market movers: Revisions never go down well
- The Indonesian Central Bank has raised its key policy rate from 6.00% to 6.25% while markets were looking for a hold or a rate cut.
- Chinese building conglomerate Country Garden has extended all its Yuan Bonds in order to avoid a local default.
- The US Senate has passed a $95 billion aid package for Ukraine, Israel and Taiwan.
- USD/JPY is ticking up again to 155.00, making a new multi-decade high. Bank of America has warned in a report on Wednesday that a forex intervention might be nearby.
- The weekly Mortgage Bankers Application Index came in at -2.7%, from a 3.3% increase last week.
- The preliminary Durable Goods print for March has been released:
- Headline orders grez by 2.6%, though the previous 1.3% got slashed to 0.7%..
- Orders without transportation, a widely followed indicator by markets, went to 0.2%, from a slashed 0.3% to only 0.1%.
- The US Treasury is heading to markets to allocate a 5-year Note.
- Equities are rallying on the back of the US Durable Goods print and it slashed revisions. The Nasdaq even jumps by 1% ahead of Meta’s earnings at the closing bell this Wednesday.
- The CME Fedwatch Tool suggests June will still be a no-change to the monetary policy rate for the Federal Reserve by 84.8%, with September bearing a 46.7% probability for a rate cut against 31.6% for unchanged.
- The benchmark 10-year US Treasury Note trades around 4.65%, off this week’s low, though not enough to move the US Dollar stronger.
US Dollar Index Technical Analysis: GDP and PCE will be key
The US Dollar Index’s (DXY) recent rally broadly comes from the staggering US economy, which has been relentlessly printing positive economic numbers. Tuesday’s PMI numbers came in below estimates for the first time since last year, but investors seem to be taking this miss as a one-off rather than a sudden shock. Markets will want to await further confirmation in the data points from this week and possibly even next week before heading back to pricing in a rate cut for June.
On the upside, first 105.88 (a pivotal level since March 2023) needs to be recovered again before targeting the high of April 16 at 106.52. Further up and above the 107.00 round level, the DXY Index could meet resistance at 107.35, the October 3 high.
On the downside, 105.12 and 104.60 should also act as support ahead of the 55-day and the 200-day Simple Moving Averages (SMAs) at 104.35 and 104.05, respectively. If those two are unable to catch the falling knife price action, the 100-day SMA near 103.70 is the next best candidate.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.