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US Dollar consolidates gains ahead of US macroeconomic data – Crypto News

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  • US Dollar struggles to build on Wednesday’s gains.
  • The US Dollar Index consolidates in a narrow range above 100.00.
  • US weekly Initial Jobless Claims and June Existing Home Sales data will be released on Thursday.

The US Dollar (USD) finds it difficult to preserve its strength early Thursday after having outperformed its major rivals on Wednesday. The US Dollar Index (DXY), which tracks the USD’s valuation against a basket of six major currencies, went into a consolidation phase above 100.00 ahead of US data releases.

The US Department of Labor will publish the weekly Initial Jobless Claims data, and the National Association of Realtors (NAR) will release the Existing Home Sales data for June later in the day.

Daily digest market movers: US Dollar stabilizes on Thursday

  • The Wall Street Journal reported early Thursday that the United States banned 14 Iraqi banks from using the USD in transactions on suspicion of these banks funneling USDs to Iran.
  • China’s ambassador to Washington, Xie Feng, said late Wednesday that China would respond if the US were to impose more curbs on the country’s chip sector.
  • Nasdaq Futures are down nearly 1% on Thursday following uninspiring earnings from big US tech firms after the closing bell on Wednesday.
  • The Federal Reserve Bank of Atlanta’s GDPNow model forecasts a 2.4% US GDP growth in the second quarter.
  • The monthly data published by the US Census Bureau showed Wednesday that Housing Starts declined 8% on a monthly basis in June, following the 15.7% increase (revised from +21.7%) recorded in May. In the same period, Building Permits fell 3.7%, swinging from May’s 5.6% increase.
  • The USD managed to capture capital outflows out of Pound Sterling early Wednesday after data from the UK showed that inflation softened at a faster pace than expected in June. Furthermore, the sharp upsurge seen in the USD/JPY pair following Bank of Japan (BoJ) Governor Kazuo Ueda’s dovish comments reaffirmed strengthening demand for the USD.
  • Retail sales in the US rose 0.2% in June to $689.5 billion, the US Census Bureau reported on Tuesday. The 0.3% increase recorded in May had been forecast to reach 0.5% in June, but the data came in far below. Retail Sales Ex-Autos increased 0.2% in the same period, coming in also slightly below the market expectation of 0.3%.
  • Industrial production in the US contracted 0.5% for the second straight month in June, data from the US Federal Reserve showed Tuesday.
  • The benchmark 10-year US Treasury bond yield clung to modest recovery gains near 3.8% on Thursday.
  • US Treasury Secretary Janet Yellen told Bloomberg on Monday that there is a good chance that the Biden administration will go ahead with outbound investment controls on China.
  • The US Dollar weakened significantly last week as soft inflation data revived expectations about the Federal Reserve reaching the terminal rate with a 25-basis-point (bps) rate hike in July.
  • The Consumer Price Index (CPI) in the US rose 3% on an annual basis in June, following the 4% increase recorded in May. The annual Producer Price Index (PPI) edged 0.1% higher in the same period.
  • Commenting on the USD’s outlook: “In case of an increasingly rapid fall in inflation and weakening economic data, the market might increasingly rely on key rates not remaining at high levels for a long time, whereas rate cuts before the end of the year are becoming increasing likely,” said Antje Praefcke, FX Analyst at Commerzbank. “That would cause the USD to ease further.”

Technical analysis: US Dollar Index stays on the back foot

The Relative Strength Index (RSI) indicator on the daily chart rose above 30 on Wednesday but turned sideways on Thursday, suggesting that the US Dollar Index (DXY) remains technically bearish following a short-lasting correction.

On the downside, critical support is located at 100.00 (psychological level). If the DXY index makes a daily close below that level, sellers could take action. In that case, 99.20 (static level from March 2022) aligns as next support before 99.00 (psychological level) and 98.30 (200-week Simple Moving Average).

Looking north, 100.50 (Wednesday high) forms interim resistance before 101.00 (former support, static level), 101.50 (static level) and 101.80 (20-day Simple Moving Average).

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.

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