- The US Dollar trades broadly stable at levels near Friday’s close.
- US markets are closed on Monday due to the Labor Day holiday.
- The US Dollar Index resides in the higher 101.00 region.
The US Dollar (USD) sidelines on Monday with a very mixed picture on the quote board against most major currencies. The US Dollar kicks off this week with a calm due to the Labor Day holiday in the US, but the economic calendar will be picking up speed towards the main event on Friday. The first Friday of the month will bring the US Jobs Report, with the Nonfarm Payrolls and other wage data for markets to move on.
Apart from the all-important payroll data, the calendar will also feature the Purchasing Managers Index (PMI) data, which tends to move markets as it gives fresh clues about the state of the economy. This could mean that the US Dollar Index might have moved already substantially ahead of Friday’s main event.
Daily digest market movers: Labor day hiatus
- US markets are closed on Monday in observance of Labor Day.
- China has warned Japan over economic retaliation over potential chip curbs, according to Bloomberg.
- On Saturday, the release of China’s Purchasing Managers Index numbers for August signaled that the contraction in the country’s manufacturing sector persists. The PMI came in at 49.1, lower than the 49.4 seen a month earlier.
- Equities are struggling across the board, with minor losses for all European indices and US futures on the back foot as well.
- The CME Fedwatch Tool shows a 69.0% chance of a 25 basis points (bps) interest rate cut by the Fed in September against a 31.0% chance for a 50 bps cut. Another 25 bps cut (if September is a 25 bps cut) is expected in November by 48.9%, while there is a 42.0% chance that rates will be 75 bps (25 bps + 50 bps) below the current levels and a 9.1% probability of rates being 100 (25 bps + 75 bps) basis points lower.
- The US 10-year benchmark rate trades at 3.90% and will not move as bond trading in the US is closed on Monday.
US Dollar Index Technical Analysis: Risky business from a technical point of view
Pure technical traders, those who do not look at data or take no headline risk, will tell you that the US Dollar Index (DXY) failed to deliver on Friday. Although the recovery looked solid, the DXY closed below 101.90, which could mean more trouble ahead. A rejection could now take place, stalling the recovery rally, pushing down the DXY back towards 100.62 from a pure technical trading point of view.
Looking up, 101.90 still remains the first level to reclaim. A steep 2% uprising would be needed to get the index to 103.18. 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) holds as 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-consolidates-in-calm-start-of-holiday-shortened-week-202409021045