- The US Dollar enters a fifth straight day of gains, though could be set to snap it under some easing.
- Markets are awaiting a change in stance from Fed Chairman Powell on Tuesday.
- The US Dollar Index starts to flirt with a break below 106 yet again as seen on Monday.
The US Dollar Index (DXY) is halting its rally for now with the US session coming in, triggering a turnaround and seeing some selling pressure in the Greenback. In the broader picture, the Greenback is enjoying the change in narrative on the rate differential since last week, which got bigger against other currencies in favor of the US Dollar. Additional tailwind comes from Israel, which vowed yet to retaliate against Iran despite diplomatic efforts to ease tensions in the Middle East, now really putting the region back on the brink of war.
On the economic data front, the data points will not really move the needle for the US Dollar on Tuesday. Main event comes in the form of three Federal Reserve (Fed) speakers, with Fed Chairman Jerome Powell being the most important. Powell’s speech could be the game changer, as any change in wording on rate cut expectations or outlook from the Fed Chairman could spark either another leg higher for the Greenback or start a severe pullback.
- At 12:30 GMT some Housing data for March is set to be released:
- Building Permits are expected to decrease to 1.514 million from 1.524 million.
- Housing starts are expected to decline to 1.48 million from 1.521 million.
- At 12:55 GMT the year-over-year Redbook Index for the week ending April 12 will be released. The index was at 5.4% the week of April 5.
- At 13:15 GMT the Fed will publish the Capacity and Industrial Production numbers for March:
- Capacity Utilization will head to 78.5% from 78.3%, according to expectations.
- Industrial Production is seen heading to 0.4% from 0.1%.
- A slew of Fed speakers that will try to guide the markets:
- At 13:00 GMT, Federal Reserve Vice Chair Philip Jefferson is due to deliver a keynote speech at the International Research Forum on Monetary Policy in Washington, DC.
- Around 16:30 GMT Federal Reserve Bank of New York President John Williams will moderate a conversation at the Economy Club of New York.
- Near 17:15 GMT, Federal Reserve Chair Jerome Powell will enter a discussion panel with the Bank of Canada governor Tiff Macklem at the Washington Forum.
- US Equities are switching to green, while European equities are left behind in the red. In a matter of just 15 minutes US equity futures are sprinting from red numbers to green, with the Dow Jones leading the charge, up near 0.60% ahead of the US Opening Bell.
- According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the May meeting are at 98.2%, while chances of a rate cut stand at 1.8%. Although there are calls for a rate hike, those are not being represented in the CME futures yet, and could add to substantial more US Dollar strength once the possibility starts to be priced in as a possibility.
- The benchmark 10-year US Treasury Note trades around 4.64%. Further move upwards could even point to expectations of another rate hike before the easing cycle will start to take place.
The US Dollar Index (DXY) is rolling through markets and clearly the division between weak and strong currencies becomes very more clear. The Greenback looks to be the ultimate gainer while Europe and China look very bleak in terms of rates and keeping them steady for longer. WIth these main currencies set to devalue substantially further in the coming weeks and months, the end of the King Dollar does not look to be taking place anytime soon, as long as US data keeps outperforming. Bets on a weaker US Dollar will get squeezed out time after time
On the upside, the first level for the DXY is the November 10 high at 106.01, just above the 106.00 figure, which got taken out overnight. Further up and above the 107.00 round level, the DXY Index could meet resistance at 107.35, the October 3 high.
On the downside, the first important level is 105.88, a pivotal level since March 2023 and which proved its importance on Monday holding support. Further down, 105.12 and 104.60 should also act as a support, ahead of the region with both the 55-day and the 200-day Simple Moving Averages (SMAs) at 103.97 and 103.84, respectively.
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.
