Most recent article:US Dollar remains vulnerable amid dovish bets on the Fed ahead of Thursday's PCE inflation figures
- The Greenback trades steady at a minor loss at the start of this week.
- US traders are back to their normal schedule after Thanksgiving.
- The US Dollar Index is showcasing a descent which could see it eking out more losses this week.
The US Dollar (USD) is picking up where it left off on Friday with a small dip lower, while statistics are not pointing to a recovery anytime soon. From the standpoint of a weekly performance, the Greenback opens a third straight week of losses, losing its grip on several substantial supportive pivotal levels in the US Dollar Index (DXY). US traders will be back in full in the market after the US holidays and are facing a quite heavy macroeconomic schedule for this week, together with a delayed OPEC+ meeting in Dubai on Thursday, while COP28 will kick off as well on the same day in the same venue.
This week starts very light with some data on New Home Sales this Monday. The focal point will be at the last three days of the week, with US Gross Domestic Product (GDP) on Wednesday. Thursday will be market moving with Jobless Claims and the Personal Consumption Expenditures Price Index (PCE) for October. Right at the end of this week, the Institute of Supply Management (ISM) is due to release its Manufacturing Purchase Managers Index (PMI) for November, with cherry on top a speech from US Federal Reserve Chairman Jerome Powell to close out the week.
Daily digest: Wait and see
- Iran is coming out with a ‘hopeful’ communication where it supports a long-term truce between Israel and Hamas.
- China’s industrial companies profit falls 7.8% year-over-year measured year-to-date. This means China industrial companies will more than likely not be able to lock in gains for 2023.
- A late start on this Monday for the US session with New Home Sales for October. It was smalllest number on record, with a decline from 0.719 million to 0.679 million.
- The Dallas Fed Manufacturing Business Index dropped from -19.2 to -19.9.
- The US Treasury will have a busy day, with no less than four auctions:
- Near 16:30 GMT a 3-month Bill is due to be auctioned, together with a 6-month bill.
- At 18:00 GMT a 2-year and a 5-year Note is to be allocated in the markets.
- Interesting – though a lagging indicator – this evening near 20:30 the Commodity Futures Trading Commission (CFTC), will publish their weekly positioning data for the futures markets. The positioning in the US Dollar will be one to watch if investors who are net long USD, having unwound further their positions in favour of other currencies.
- Equities are starting this week in the red after earlier China data disappointed markets, dampening hopes for a speedy recovery of the Chinese economy. All indices are in the red, though less than 1%.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 96.8% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December.
- The benchmark 10-year US Treasury Note traders at 4.45% and is steady after briefly hitting 4.51%.
US Dollar Index technical analysis: DXY flat
The US Dollar is drifting away from its lifelines on both a daily and weekly chart of the US Dollar Index (DXY). With this, more downside starts to open up, and makes traders possibly see further unwinding of their net long positions in the Greenback. Should any datapoint this week bear a negative connotation, it could mean substantially more downside to come for the US Dollar and the DXY.
The DXY is hanging below the 200-day Simple Moving Average (SMA), which is near 103.62. The DXY could still make it back up there, should US traders come back in the market and start buying the current dip. A two-tiered pattern of a daily close and next an opening higher would quickly see the DXY back above 104.25, with the 200-day and 100-day SMA turned over to support levels.
To the downside the 200-day SMA is losing its element as support and is unable to provide any. Rather look for lows of last week at 103.18 and 102.98 as levels for a brief bounce. Should any of the US numbers this week be a substantial disappointment, look for even a 2.5% devaluation in the Greenback to 100.82 with little to support along the way.
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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