US Dollar rolls on as markets fly to safety – Crypto News – Crypto News
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EUR/USD hits a daily high around 1.0202 post-FOMC minutes EUR/USD hits a daily high around 1.0202 post-FOMC minutes

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US Dollar rolls on as markets fly to safety – Crypto News

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  • US Dollar stays at session’s high against most other pairs, flirting with news gains for the weekly performance.
  • US debt-ceiling talks continue with no sings of a solution while several rating agencies are issuing a negative outlook for the US credit rating.
  • US Dollar Index consolidated above 104, next level on the upside is at 105.

The US Dollar (USD) on track to set its best week since January as the Greenback gains territory against the G7 and smaller currencies. Comments overnight from US Treasury Secretary Janet Yellen and the FOMC Minutes confirmed what traders assumed, that the current play with the USD as safe haven is still very much the place to be. Meanwhile US debt-ceiling talks ended again unresolved but with good progress according to US House Speaker Kevin McCarthy.

On the macroeconomic data front, traders will watch the second estimate of US Gross Domestic Product (GDP) numbers for the 1st quarter at 12:30 GMT. initial Jobless Claims at that same time will show a glimpse of how the job market is doing. Throughout the day it will be wildly worth keeping an eye on 1-year US Treasury Bills (T-bills) as they have been soaring to 7% on Wednesday, with US Credit Default Swaps (CDS) back at the highs. Fed officials are set to speak with Thomas Barkin talking at 13:30 GMT at an Economic Forum and then Susan Collins at 14:30 GMT.

Daily digest: US Dollar rocking the markets

  • DBRS Morningstar joins the group of credit agencies that is placing a negative review of its US credit rating.
  • The CME group is preparing for a US debt default by looking at adjusting haircuts on US Bonds if the debt ceiling risk rises further.
  • US Treasury Secretary Yellen reiterated that the US government may run out of cash as of June 1st and that some obligations will be unable to be paid after that day. Some stress in financial markets currently at hand might substantially escalate further if a deal is not found.
  • Kevin McCarthy concluded the talks on Wednesday with no deal, but good progress.
  • The FOMC Minutes underlined again that the Fed remains data-dependent with cuts unlikely while inflation is still unacceptably high.
  • Fitch issued a negative outlook for its AAAu credit rating of the United States.
  • US Credit Default Swaps (CDS) jumped higher for a third day in a row and are nearing the peak of last Wednesday.
  • US equity futures are mixed with Nvidia (NVDA) up 25% and keeping the Nasdaq in the green while the Dow Jones Industrial Index is on the back foot.
  • The CME Group FedWatch Tool shows that markets are pricing in a 75% chance of rate hike for July when the FOMC minutes from Wednesday confirmed the datadependancy of the Fed and their stance that inflation is still too elevated.
  • The benchmark 10-year US Treasury bond yield trades at 3.75% and flirts with another two-month high after as it is set to take out Tuesday’s high.

US Dollar Index technical analysis: risk-off flow supports DXY

The US Dollar Index (DXY) has taken out both the 55-day and the 100-day Simple Moving Averages (SMA), respectively, at 102.43 and 102.85 on the upside. The safe haven status keeps seeing bids for the DXY with 104 having been broken early on Thursday, during the European trading session. The next target becomes 105.

On the upside, 105.74 (200-day SMA) still acts as a long-term price target to hit, as the next upside key level for the US Dollar Index is at 104.00 (psychological, static level), and acts as an intermediary element to cross the open space.

On the downside, 102.85 (100-day SMA) aligns as the first support level to confirm a change of trend. In case that breaks down, watch how the DXY reacts at the 55-day SMA at 102.48 in order to assess any further downturn or upturn.

How is US Dollar correlated with US stock markets?

Stock markets in the US are likely to turn bearish if the Federal Reserve goes into a tightening cycle to battle rising inflation. Higher interest rates will ramp up the cost of borrowing and weigh on business investment. In that scenario, investors are likely to refrain from taking on high-risk, high-return positions. As a result of risk aversion and tight monetary policy, the US Dollar Index (DXY) should rise while the broad S&P 500 Index declines, revealing an inverse correlation.

During times of monetary loosening via lower interest rates and quantitative easing to ramp up economic activity, investors are likely to bet on assets that are expected to deliver higher returns, such as shares of technology companies. The Nasdaq Composite is a technology-heavy index and it is expected to outperform other major equity indexes in such a period. On the other hand, the US Dollar Index should turn bearish due to the rising money supply and the weakening safe-haven demand.

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