- The Greenback trades flat, attempting to push against the recent downtrend.
- US traders will hear from no less than four Fed members this Tuesday.
- The US Dollar Index is steady above 103 and tries to head back to 104.
The US Dollar (USD) is trying to put up a fight this Tuesday as the downtrend is coming to a halt for now. Best way to look at it is via the US Dollar Index (DXY) which is seeing a little bit of a bounce in Asian trading this Tuesday, with the DXY holding above 103. The economic calendar this Tuesday could spark some more movements in favour of the Greenback again and see the bounce add another leg up later in the trading session this Tuesday.
Besides some rather light US data points, markets can look forward to comments from no less than four US Federal Reserve members. Two of them are actually speaking twice this Tuesday, so that makes it in total seven guidance events for the markets. Expect to see traders look for clues on any further confirmation that the Fed is truly done hiking, or more tightening is needed according to some members.
Daily digest: Fed has an opportunity here
- As mentioned in the paragraphs above, four Fed officials are due to speak:
- Austan Goolsbee from the Chicago Fed is due to speak around 15:00 GMT and will close off this Tuesday with comments at 22:00 GMT.
- Just five minutes after Goolsbee, Christopher Waller from the Board of directors will speak at 15:05 GMT.
- Michelle Bowman, who sits at the Board of Governors of the Fed, will speak around 15:45 GMT.
- Fed’s Vice Chairman Michael Barr will speak twice this Tuesday: Once at 18:05 GMT and once at 20:30 GMT.
- Near 13:55 GMT the Redbook Index for the week of NOvember 24th is due to come out. Previous was at 3.4%.
- At 14:00 GMT the Housing Price Index for September is due. Previous was a rise of 0.6% with 0.4% forecasted.
- At that same time, 14:00 GMT, the Case-Shiller Home Price Index is due as well. Previous was at 2.2% with 4% forecasted.
- At 15:00 GMT markets will hear from the US consumer as the Consumer Confidence for November will be due. Previous was at 102.6 and should soften a touch to 101.
- Be on the lookout for the Richmond Fed Manufacturing Index for November as well at 15:00 GMT, expected to head from 3 to 1.
- The US Treasury will head to markets to auction a 52-week Bill and a 7-year Note respectively at 16:30 GMT and 18:00 GMT.
- Equities are continuing their decline from Monday, with nearly every major index in the red across the globe. in Asia the Hong Kong Hang Seng Index is down by 1%. European indices and US equity futures are rather mildly in the red and can still turn around the ship in the course of this Tuesday.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 96.6% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December. The chance for another hike is gaining by 3.4%.
- The benchmark 10-year US Treasury Note traders at 4.40% and is steady after briefly hitting 4.51%.
US Dollar Index technical analysis: Brief decoupling
The US Dollar is breaking up the pattern traders saw forming over the past few days and which has led to the decline in the Greenback. US Yields are continuing to decline, narrowing the yield gap with other developed currencies. Although, the Greenback on its own is not following suit this Tuesday, breaking up the correlation, there is a risk that the correlation kicks in again later today and might see another snap lower in the US Dollar Index.
The DXY is hanging below the 200-day Simple Moving Average (SMA), which is near 103.62. The DXY could still make it back up there, should US traders come back in the market and start buying the current dip. A two-tiered pattern of a daily close and next an opening higher would quickly see the DXY back above 104.25, with the 200-day and 100-day SMA turned over to support levels.
To the downside the 200-day SMA is losing its support properties. The lows of last week at 103.18 and 102.98 would rather be seen as levels for a brief bounce. Should any of the US numbers this week be a substantial disappointment, look for even a 2.5% devaluation in the Greenback to 100.82 with little to support along the way.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.