- The US Dollar trades flat in the European trading session ahead of some lower-tier economic data.
- All eyes are on the first debate between Trump and Harris on Tuesday night in Philadelphia.
- The US Dollar Index halts its rally ahead of testing a vital resistance level.
The US Dollar (USD) is sidetracking on Tuesday, away from being data-driven on riding the US Federal Reserve (Fed) comments for a brief moment. All eyes on Tuesday will be on the clash between former US President Donald Trump and Vice President Kamala Harris in their race for the White House. It will be the first – and possibly the only time – that the two candidates will get to debate each other in an attempt to win more votes as polls suggest that Trump has regained some ground compared to where things stood after the Democratic convention.
On the economic data front, the economic calendar doesn’t offer much market-moving numbers to digest on Tuesday. Even the speech from Federal Reserve Vice Chair for Supervision Michael Barr is not expected to have any impact as the Fed is already within its blackout period ahead of the Federal Open Market Committee (FOMC) gathering on September 17 and 18. It looks like markets will have a dull day ahead if no comments or major headlines emerge.
Daily digest market movers: Very quiet Tuesday
- The NFIB Business Optimism Index for August came in at 91.2, below the 93.6 expected and down from 93.7 previously.
- The Organization of the Petroleum Exporting Countries (OPEC) has released its monthly outlook report and sees still ample amount of demand, despite the recent easing in global economic activity. Enough though for OPEC to soon restart its production to more normal capacity and lift its production cuts which will be kept in place for another two months, Bloomberg reports.
- Federal Reserve Vice Chair for Supervision Michael Barr speaks at a Brookings Institution event in Washington about the Basel III Endgame regulatory framework. Barr isn’t expected to talk about monetary policy because the Fed is within its blackout period ahead of its meeting on September 17-18.
- The US Treasury is set to distribute a 3-year note around 17:00 GMT.
- European equities remain lagging while US futures are starting to turn positive ahead of the US opening bell.
- The CME Fedwatch Tool shows a 73.0% chance of a 25 basis points (bps) interest rate cut by the Fed on September 18 against a 27.0% chance for a 50 bps cut. For the meeting on November 7, another 25 bps cut (if September is a 25 bps cut) is expected in November by 31.9%, while there is a 52.9% chance that rates will be 75 bps (25 bps + 50 bps) and a 15.2% probability of rates being 100 (25 bps + 75 bps) basis points lower.
- The US 10-year benchmark rate trades at 3.71%, off the low from Monday, when T-notes hit 3.69%.
US Dollar Index Technical Analysis: Datadriven without data
The US Dollar Index (DXY) is letting loose this Tuesday after its rally on Monday, when the DXY was able to cross to the higher level of the range it has been trading since mid-August. The light data calendar makes the US Dollar range trade for now, awaiting either more clear data to confirm what kind of interest-rate cut markets will get next week from the Fed or any geopolitical catalysts
The first resistance at 101.90 is getting ready for a second test after its rejection last week. Further up, a steep 2% uprising would be needed to get the index to 103.18. The next tranche up is a very misty one, with the 55-day Simple Moving Average (SMA) at 103.40, followed by the 200-day SMA at 103.89, just ahead of the big 104.00 round level.
On the downside, 100.62 (the low from December 28) holds strong and has already made the DXY rebound four times in recent weeks. 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
Banking crisis FAQs
The Banking Crisis of March 2023 occurred when three US-based banks with heavy exposure to the tech-sector and crypto suffered a spike in withdrawals that revealed severe weaknesses in their balance sheets, resulting in their insolvency. The most high profile of the banks was California-based Silicon Valley Bank (SVB) which experienced a surge in withdrawal requests due to a combination of customers fearing fallout from the FTX debacle, and substantially higher returns being offered elsewhere.
In order to fulfill the redemptions, Silicon Valley Bank had to sell its holdings of predominantly US Treasury bonds. Due to the rise in interest rates caused by the Federal Reserve’s rapid tightening measures, however, Treasury bonds had substantially fallen in value. The news that SVB had taken a $1.8B loss from the sale of its bonds triggered a panic and precipitated a full scale run on the bank that ended with the Federal Deposit Insurance Corporation (FDIC) having to take it over.The crisis spread to San-Francisco-based First Republic which ended up being rescued by a coordinated effort from a group of large US banks. On March 19, Credit Suisse in Switzerland fell foul after several years of poor performance and had to be taken over by UBS.
The Banking Crisis was negative for the US Dollar (USD) because it changed expectations about the future course of interest rates. Prior to the crisis investors had expected the Federal Reserve (Fed) to continue raising interest rates to combat persistently high inflation, however, once it became clear how much stress this was placing on the banking sector by devaluing bank holdings of US Treasury bonds, the expectation was the Fed would pause or even reverse its policy trajectory. Since higher interest rates are positive for the US Dollar, it fell as it discounted the possibility of a policy pivot.
The Banking Crisis was a bullish event for Gold. Firstly it benefited from demand due to its status as a safe-haven asset. Secondly, it led to investors expecting the Federal Reserve (Fed) to pause its aggressive rate-hiking policy, out of fear of the impact on the financial stability of the banking system – lower interest rate expectations reduced the opportunity cost of holding Gold. Thirdly, Gold, which is priced in US Dollars (XAU/USD), rose in value because the US Dollar weakened.
Source: https://www.fxstreet.com/news/us-dollar-steadies-ahead-of-first-clash-between-trump-and-harris-in-presidential-debate-202409101130