US Dollar advances amid resilient US labor market

23 Nov 2023, 02:06 · Views 53

The DXY Index rose to 103.90, up by 0.30%.
US weekly Initial Jobless Claims came in better than expected, but Durable Goods Orders from October were disappointing.
US yields are higher, favouring the Greenback’s advance.

On Wednesday, the US Dollar found momentum after the report of positive weekly Initial Jobless Claims from the US, which flashed further warning among investors regarding further tightening from the Federal Reserve (Fed).

The labor market in the United States is showing signs of resilience, and despite the evidence of inflation, it might make Fed officials consider further tightening, which seems to be spooking investors.

Daily Digest Market Movers: US Dollar finds a lift on better-than-expected Initial Jobless Claims

The US Dollar DXY Index trades neutrally around 103.50.
Initial Jobless Claims in the US for the week ending November 18 were lower than expected at 209,000, marking the lowest level in five weeks.
Durable Goods Orders in the US dropped by 5.4%, exceeding the forecasted 3.1% contraction, following a previous month's increase of 4.6%.
Despite the decline in Durable Goods Orders, the US Dollar strengthened against other currencies, with the DXY index climbing to 104.10, showing a 0.50% rise.
The Federal Open Market Committee's November Minutes revealed that officials were concerned about inflation and needed to see more evidence to be convinced that inflation is coming down.
The 2, 5 and 10-year rates increased to 4.96%, 4.46% and 4.43%. Still, markets are confident that the Federal Reserve won’t hike in November and are betting on rate cuts sooner than expected in May 2024. A sizable minority is even betting on a rate cut in March.

Technical Analysis: US Dollar bulls see some light, bears still show dominance

The technical landscape of the DXY daily chart delivers a mix of bullish and bearish signals. The Relative Strength Index (RSI) standing flat near oversold conditions indicates a potential weakening of the selling momentum. This could suggest an imminent reversal, a classic sign that buying pressure could soon resurface. Contrarily, the flat red bars of the Moving Average Convergence Divergence (MACD) hint at a short-term bearish bias, suggesting that sellers might be in control of the immediate market. Yet, it is important to bear in mind that the index’s continuous flat nature could turn either way.

Furthermore, the DXY's position below the 20 and 100-day Simple Moving Averages (SMAs) can be perceived as a bearish signal. However, it currently sits above the 200-day SMA, suggesting that bulls hold the fort on a broader time frame with the underlying trend remaining upward.

Support levels: 103.60 (200-day SMA), 103.30, 103.15.
Resistance levels: 104.00, 104.20 (100-day SMA),104.50.

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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