US Dollar in the green ahead of JOLTS and ISM to confirm stronger Greenback – Crypto News – Crypto News
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US Dollar Index flirts with nearly 2-decade highs north of 109.00 US Dollar Index flirts with nearly 2-decade highs north of 109.00

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US Dollar in the green ahead of JOLTS and ISM to confirm stronger Greenback – Crypto News

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  • The US Dollar soars as Moody’s downgrades China credit outlook.
  • Traders brace for ISM Services PMI and Jolts data on Tuesday.
  • The US Dollar Index jumps to 104.00, snapping crucial resistance levels. 

The US Dollar (USD) appreciates significantly in the European trading session on Tuesday after rating agency Moody’s downgraded China’s credit outlook from stable to negative due to rising debt.  More US Dollar Strength comes from European Central Bank (ECB) member Isabel Schnabel, who said she is surprised by the substantial decline in inflation and no more interest-rate hikes are further needed. 

On the economic front, the calendar is starting to pick up some steam with the Institute for Supply Management (ISM) Services PMI on the wires this Tuesday. Traders will also get to see how healthy the demand for labor is with the US JOLTS job openings data. The S&P Global Purchasing Managers numbers are not expected to move the needle, though any beat on expectations might give the US Dollar more impulse. 

Daily digest: ISM to confirm stronger USD

  • Rating agency Moody’s has issued a negative outlook for China, a downgrade from the previous “stable” label. 
  • European Central Bank (ECB) board member Isabel Schnabel said that she is surprised by the shere speed of decline in inflation in the Eurozone, and no further hikes should be needed. Schnabel is considered to be a hawk, which makes these comments even more important and signals a change in the stance and outlook of the ECB. 
  • At 13:55 GMT, the Redbook Index was released and went from 6.3% to 3%.
  • At 14:45 GMT, the S&P Global Purchasing Managers Indices are expected:
    1. The Services PMI is expected to stay stable from its preliminary reading at 50.8.
    2. The Composite flash reading for November stood at 50.7.
  • Chunky batch of data at 15:00 GMT:
    1. The Institute  for Supply Management (ISM) will release its November numbers:
    2. Headline Services PMI for November expected to increase from 51.8 to 52.
    3. Services Employment Index for October was at 50.2. No forecast.
    4. Services New Orders Index for October was at 55.5. No forecast pencilled in.
    5. Services Prices Paid for October was at 58.6. No forecast.
    6. JOLTS Job Openings for October is expected to decline a little from 9.553 million to 9.3 million.
  • Equities are bleeding severely this Tuesday with nearly all Asian equity indices down over 1%, with China’s leading indices down more than 2%. European equities trying to turn the tide and are mildly in the green. US Futures are still looking for direction. 
  • The CME Group’s FedWatch Tool shows that markets are pricing in a 97.5% chance that the Federal Reserve will keep interest rates unchanged at its meeting next week.  
  • The benchmark 10-year US Treasury Note steadies at 4.21%. Yields in Europe, on the other hand, are falling. 

US Dollar Index technical analysis: Two tails

The US Dollar trades around 103.74 and has the next level, 104.00, in sight. Elements like the sudden shift to no-hikes from the ECB widens further the rate differential between the US Dollar and other currencies. In this favourable context,  the US Dollar Index (DXY) is rallying as well. With a few landmark resistances being challenged and broken, more room for Dollar strength is in the pipeline. 

The DXY has performed a daily close on Monday and an opening just above the 200-day Simple Moving Average (SMA), which is near 103.58. The DXY could still make it further up, should employment data trigger rising US yields again. A two-tiered pattern of a daily close lower followed by an opening higher would quickly see the DXY back above 104.28, with the 200-day and 100-day SMA turned over to support levels. 

To the downside, historic levels from August are coming into play, when the Greenback summer rally took place. The lows of June make sense to look for some support, near 101.92, just below 102.00. Should more events take place that initiate further declines in US rates, expect to see a near-full unwind of the 2023 summer rally, heading to 100.82, followed by 100.00 and 99.41.

Central banks FAQs

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

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