US Dollar retreats further as Greenback recovery looks impossible for this week

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  • The Greenback slips back in the red after weekly Jobless Claims print.
  • Traders are fretting on positioning going forward. 
  • The US Dollar Index flirts with a break below 104.

The US Dollar (USD) breaks out of its tight range for this Thursday and flirts with the previous low of Tuesday. Traders look for further clues and confirmation if the Fed is truly done hiking, with bets mounting on when the Fed will cut first. Meanwhile yields are sinking lower and equities are soaring, which means that the rate differential story between the Greenback and other currencies is losing its importance. 

The calendar this Thursday is a very packed one with all eyes on US Federal Reserve speakers: no less than five members of the Board of Governors are expected to speak. Add a few lighter data points that could confirm and reassure traders that the Fed is really done hiking, and some more Greenback devaluation might be at hand. In the background the clock is ticking on the US debt ceiling with no concrete solution yet nearby. 

Daily digest: US Dollar retreats on an uptick in Jobless Claims

  • US Senate has passed a temporary funding bill to avert a Government Shutdown. 
  • US President Joe Biden met Chinese President Xi Jinping at the historic Filoli estate south of San Francisco on Wednesday: Reports appear to be quite positive, with the two superpowers agreeing to reopen communication lines and China to regulate chemical exports used in the manufacture of the opioid fentanyl. Differences over Taiwan, however, remain a sore spot. 
  • No less than five US Federal Reserve members are due to speak this Thursday:
    1. Lisa D. Cook, a member of the Federal Reserve Board of Governors was due to speak at 11:00 GMT. No headlines to report from here speech.
    2. Cleveland Fed President Loretta Mester said that the Fed is comfortable on where rates are at the moment, and that the Fed remains data dependant.
    3. At 14:25, New York Fed President John Williams was due to speak, though no comments on policy outlook.
    4. Federal Reserve Board Governor Christopher Waller will take the stage near 15:30.. 
    5. Loretta Mester will speak for a second time this Thursday near 17:00, together with Lisa Cook. 
  • Around 13:30 GMT, the weekly Jobless Claims report was due:
    1. Initial Jobless Claims have risen from a revised 218,000 to 231,000.
    2. Continuing Claims have risen from a revised 1,833,000 to 1,865,000.
  • At the same time, the Import/Export Price Index was released:
    1. The Monthly Export Price Index for October went from a revised 0.5% to -0.59%.
    2. The Yearly Export Price Index was at -4.1% and headed to -4.9%.
    3. The Monthly Import Price Index for October went from a revised 0.4% to -0.8%.
    4. The Yearly Import Price Index was at -1.7% and went to -2%.
  • The last bit of information at 13:30 GMT was the Philadelphia Fed Manufacturing Survey for November, which went from -9 to -5.9.
  • Industrial Production for the month of October went from a revised 0.1% to -0.6%.
  • At 15:00 GMT the National Association of Home Builders (NAHB) Housing Market Index for November will be released: A steady 40 number is expected.
  • The last number of importance this Thursday will be the Kansas Fed Manufacturing Activity Index for November. The previous number was at -8, no forecast foreseen. 
  • Equities are undergoing some profit taking after their  two-day rally. The Hang Seng slides over 1%, while Japan was able to contain losses to less than 1%. European equities are opening marginally in the red, while US equity futures see the Nasdaq leading the decline. 
  • The CME Group’s FedWatch Tool shows that markets are pricing in a 100% chance,  up from 85.7% on Tuesday morning, that the Federal Reserve will keep interest rates unchanged at its meeting in December. 
  • The benchmark 10-year US Treasury yield trades at 4.46%, and is starting to tick up a bit, little by little.

US Dollar Index technical analysis: Hopes for speedy recovery dampening

The US Dollar is trying to continue its recovery from Tuesday's meltdown. The recovery is not going as speedy as hoped for, however, as only baby steps are visible in the US Dollar Index (DXY). It looks like traders have been unwinding their US Dollar long positions and only a substantial catalyst in favour of the Greenback will help to bring the DXY back to 105 and higher. 

The DXY was able to bounce off the 100-day Simple Moving Average (SMA) near 104.20. Expect to see a bounce from there with 105.29, the low of November 6, as the market level where the DXY should try to close above this week. From there, the 55-day SMA at 105.71 is the next price point on the topside that needs to be reclaimed by US Dollar bulls before starting to think of more US Dollar strength to come into play. 

Traders were warned that when the US Dollar Index would slide below that 55-day SMA, a big air pocket was opening up that could see the DXY fall substantially. This materialised on Tuesday. For now the 100-day SMA is trying to hold, at 103.62, although the 200-day SMA is a much better candidate for support. Should that level even be broken substantially, a long term sell-off could get underway with the DXY falling between 101.00 and 100.00.


Central banks FAQs

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

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