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US Dollar eases after Housing Sales decline further

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FXStreet in Market News 12 391272
May 22, 2024 22:51

content provided with permission by FXStreet

  • The US Dollar trades in the green ahead of the release of Nvidia earnings and the Fed Minutes.
  • Volatility around the Greenback could pick up with plenty of economic data points on Thursday.
  • The US Dollar Index trades in a tight range, starts to break above important moving average.

The US Dollar (USD) is starting to tick up as markets await a volatile 24 hours ahead which will commence with the release of the Federal Reserve (Fed) Minutes from the recent Federal Open Market Committee (FOMC) decision on why they kept rates stable. Even as the report can be a market-moving event, not much is expected this time as traders have heard from plenty of Fed speakers since Monday, all roughly advocating to keep interest rates at the current levels with no hikes foreseen. After that, the much-anticipated earnings from Nvidia (NVDA) could set the tone for either risk on or risk off ahead of Thursday, when a lot of US data points will be released. 

On the economic data front, a rather light Wednesday ahead with Existing Home Sales as a single big data point to be released. Though, another decline in Home Sales is confirming the turn in sentiment on US exceptionalism which now clearly is on its last legs. More activity is expected on Thursday, when the usual Jobless Claims numbers will be published. 

Daily digest market movers: Another miss on housing

  • Markets were caught by surprise by the inflation data from the United Kingdom. Monthly headline inflation picked up by 0.3% against 0.6% previous, more than the 0.1% expected. This sees markets repricing most major currencies a bit on the initial rate cut expectations from central banks. 
  • Wednesday’s US calendar has kicked off with the Mortgage Bankers Association Survey for the Mortgage Applications for this week. Last week saw a steady 0.5% increase, with this week 1.9% as result.
  • At 12:40 GMT, Federal Reserve Bank of Chicago President Austan Goolsbee delivers opening remarks at the Holding Company Symposium hosted by the bank.
  • At 14:00 GMT, Existing Home Sales numbers for April were released. In March, home sales declined by 4.3% and for April another decline by 1.9% was reported.
  • Nvidia Earnings are expected near 16:00 GMT and could set the risk tone further for the rest of the trading day.
  • Near 17:00 GMT, the US Treasury will allot a 20-year bond auction in the market. 
  • At 18:00 GMT, the Fed Minutes will be released.
  • US equities are trading flat after the US opening bell, awaiting those Nvidia earnings. 
  • The CME Fedwatch Tool is seeing a shift in pricing with the June projections near 98.4% for no change in the policy rate against 1.6% chance of a hike. September futures are now seeing a 50.6% chance for a 25-basis-points cut. 
  • The benchmark 10-year US Treasury Note trades around 4.43%, near the high for this week.

US Dollar Index Technical Analysis: Bouncing off support

The US Dollar Index (DXY) is starting to break out of its tight range ahead of some market-moving elements that are hard to preposition for in advance. Nvidia earnings might be the main event even for this Wednesday as they have the capacity to decide the overall market mood. The fact that a single stock’s earnings could determine the risk tone for the remainder of the US trading session might see traders chasing the trade and moving the US Dollar Index in an unusual direction. 

On the upside, the DXY Index is already near a chunky resistance level. The first level to recover is the 55-day Simple Moving Average (SMA) at 104.74. Further up, the following levels to consider are 105.12 and 105.52. 

On the downside, the 100-day SMA around 104.22 is the last man supporting the decline. Once that level snaps, an air pocket is placed between 104.11 and 103.00. Should the US Dollar decline persist, the low of March at 102.35 and the low from December at 100.62 are levels to consider.  

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.