- The US Dollar trades up ahead of a quiet US economic calendar.
- Markets seem to turn risk-off ahead of Nvidia earnings, benefiting the Dollar and weighing on Chinese tech stocks and cryptocurrencies.
- The US Dollar Index edges up slightly, trading just below 101.00 for a second day in a row.
The US Dollar (USD) ties up with gains on Wednesday, with markets getting a bit nervous ahead of Nvidia Corp. (NVDA) earnings to be released after the US closing bell. Seeing the recent slowdown in some economic numbers and with the boom around Artificial Intelligence (AI) having eased a touch, traders wonder if Nvidia can keep up its pace of growth and its streak of beating earnings. A miss on estimates could spark some sharper risk-off moves, a scenario that would put the US Dollar back in the graces of traders with safe-haven flows unfolding.
On the US economic calendar front, nearly no data points for markets to digest on Wednesday. This adds to more tension and expectations for the Nvidia earnings. Even Federal Reserve officials aren’t expected to make an early appearance, with only Federal Reserve Bank of Atlanta President Raphael Bostic set to speak at 22:00 GMT.
Daily digest market movers: Dollar bid for a day
- At 11:00 GMT, the Mortgage Bankers Association has released its weekly Mortgage Applications Index, this time for the week ending August 23. The week before, the index posted a steep decline of 10.1% with the most recent number coming in at 0.5%.
- The US Treasury is auctioning a 5-year note around 17:00 GMT.
- Federal Reserve Bank of Atlanta President Raphael Bostic participates in a moderated conversation and Q&A about the US economic outlook at the Stanford Club of Georgia at 22:00 GMT.
- Equities in Asia got dragged lower due to Chinese tech stocks dipping ahead of Nvidia earnings later this Wednesday. Both European and US indices are rather flat.
- The CME Fedwatch Tool shows a 63.5% chance of a 25 basis points (bps) interest rate cut by the Fed in September against a 36.5% chance for a 50 bps cut. Another 25 bps cut (if September is a 25 bps cut) is expected in November by 42.5%, while there is a 45.4% chance that rates will be 75 bps (25 bps + 50 bps) below the current levels and a 12.1% probability of rates being 100 (25 bps + 75 bps) basis points lower.
- The US 10-year benchmark rate trades at 3.82%, quite stable for the second day in a row.
US Dollar Index Technical Analysis: Nvidia hits investor’s nerve
The US Dollar Index (DXY) is seeing a very odd driver dictating direction. The assumption is very easy: should Nvidia earnings beat expectations again, a new wave of risk-on flows will likely push equities higher and the US Dollar lower. If earnings fall in line with expectations or below them, the US Dollar is expected to rally and risk-off flows would send equities south.
For a recovery, the DXY faces a long road ahead. First, 101.90 is the level to reclaim. A steep 2% uprising would be needed to get the index to 103.18 from the current 101.00. A very heavy resistance level near 104.00 not only holds a pivotal technical value, but it also bears the 200-day Simple Moving Average (SMA) as the second heavyweight to cap price action.
On the downside, 100.62 (the low from December 28) tries to hold support, although it looks rather feeble. Should it break, the low from July 14, 2023, at 99.58 will be the ultimate level to look out for. Once that level gives way, early levels from 2023 are coming in near 97.73.
US Dollar Index: Daily Chart
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.
Source: https://www.fxstreet.com/news/us-dollar-benefits-from-mild-risk-off-mood-ahead-of-nvidia-earnings-202408281130