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US Dollar enjoys a day off while equities rally – Crypto News

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  • US Dollar price action expected to head sideways at the start of the week. 
  • No real outliers or data points to monitor at the start of the week. 
  • The US Dollar Index is likely to hold above 104.00. 

The US Dollar (USD) is heading sideways this Monday with a little bit of selling pressure. That pressure is coming from some profit taking in the aftermath of the US Nonfarm Payrolls fallout which triggered a stronger Greenback in the trading hours after the print. With the US markets closed for Labor Day, traders are ignoring the current tail risks and are chosing risk on with equities jumping higher intraday. 

The focal point this week will be on Wednesday, when the Institute of Supply Management (ISM) will publish the key Services Purchasing Managers Index (PMI) survey for August.  Additionally, nearly eight central bank speakers are due to make an appearance and might guide the market towards the next US Federal Reserve meeting on September 20.

Daily digest: US Dollar a mixed bag

  • A very calm calendar ahead with US markets closed for the US Labor Day holiday.
  • Germany July Machinery orders fell 11% on a yearly basis.
  • Italy is set to prepare for raising its 2023 budget deficit targets, according to Reuters.
  • Chinese president Xi Jinping will not attend the G-20 summit in India after reports that Chinese banks are distributing billions of loans to Russia.
  • China issues more stimulus measures, which makes the property stocks gauge jump 2.8%. 
  • Markets will be on edge to hear if the biggest property developer of China, Country Garden,  can afford its bond payments, which are already in an extended grace period. Non-payment would trigger a default. 
  • A similar picture to Friday unfolds in the equity markets with the Japanese Topix index closes at +1.02%. The Hong Kong Hang Seng is about to close higher after its emergency close on Friday due to a typhoon. The index caught up, jumping 2.50% near its closing bell. European equities are trading higher over 0.50% and US equity futures are mildly in the green.  
  • The CME Group’s FedWatch Tool shows that markets are pricing in a 93% chance that the Federal Reserve will keep interest rates unchanged at its meeting in September. 
  • The benchmark 10-year US Treasury bond yield trades at 4.18% and will not move this Monday as bond markets are closed for US Labor Day.

US Dollar Index technical analysis: left or right

The US Dollar is steady, with no real outliers to report on this Monday. Volumes are usually lower on Mondays, and even more today  with the US markets closed for US Labor Day. No big moves to takeaway for the US Dollar Index (DXY), which looks to be consolidating above 104.00. 

In case pace picks up again on Tuesday in the same direction asFriday, a surge towards 104.00 is likely. In this region,  104.35 (the peak of August 29) is an ideal candidate for a double top. Should the Greenback go on a tear, expect a test at 104.47 – the six-month high. From there, 104.70 from May 31 will be the next target.

On the downside, the summer rally of the DXY will be the key element to track for any change in sentiment. That is the 200-day Simple Moving Average (SMA) at 103.06, which could bring substantially more weakness once the DXY starts trading further below it. The double belt of support at 102.42, with both the 100-day and the 55-day SMA, are the last lines of defence before the US Dollar sees substantial and longer-term depreciation. 

 

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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