- The US Dollar trades sideways on Wednesday despite sluggish US Retail Sales.
- Markets face a relatively quiet trading day, with US markets closed in observance of Juneteenth.
- The US Dollar index flirts with 105.00 support, though this week’s upcoming US data might trigger a break.
The US Dollar (USD) trades flat on Wednesday, with US markets closed in observance of Juneteenth. US bond markets are closed and US equities will only see the futures markets moving. Traders will be able to let the dust settle after the downbeat Retail Sales report for May, released on Tuesday.
On the US economic data front, there are two data points to digest on a very light trading day. The Mortgage Bankers Association will release its Mortgage Applications number for the week of June 14. The number has some importance because it was in contraction for a few weeks in a row until the previous week was a staggering 15.6% uptick.
Daily digest market movers: A public holiday schedule
- Although US markets are closed on Wednesday, there are some key headlines to report:
- Japan’s opposition front asked Japanese Prime Minister Fumio Kishida to call for snap elections, Bloomberg reported.
- The US has given the green light for an arms deal with Taiwan, triggering fury with China on the matter, Baha news reported.
- France, Italy, Belgium, and five other European countries are set to be reprimanded and fined for their deficits breaching EU finance rules, according to Bloomberg.
- At 11:00 GMT, the Mortgage Bankers Association released its Mortgage Applications survey. Last week’s number snapped the contraction path with a staggering 15.6%, where this week only saw a mild pickup in demand by 0.9%..
- At 14:00 GMT, the National Association of Home Builders will release its June Housing Market Index. The previous number was 45, and a steady 45 is expected again.
- Equity markets are not doing well again, with all indices in Europe in the red. US futures are marginally in the green.
- The CME FedWatch Tool shows a 32.8% chance of the Fed interest rate remaining at the current level in September. Odds for a 25-basis-points rate cut stand at 60.0%, while a very slim 7.2% chance is priced in for a 50-basis-points rate cut.
- The benchmark 10-year US Treasury Note trades at its lowest level in a month, at 4.22%. No further moves expected today as bond markets are closed.
US Dollar Index Technical Analysis: Dust settles on France
The US Dollar Index (DXY) is trying to hold firm, though it is starting to lose its shine. With the European political turmoil starting to ease and fading into the background, US data comes to the forefront again. With downbeat US Retail Sales data for May released on Tuesday, the always resilient Dollar bulls must also start to doubt their beliefs. Under these current economic conditions, the Greenback is still a touch overvalued and needs another correction to head back to its fair value.
On the upside, there are no big changes to the levels traders need to watch out for. The first is 105.52, a barrier that held during most of April. The next level to watch is 105.88, which triggered a rejection at the start of May and will likely play its role as resistance again. Further up, the biggest challenge remains at 106.51, the year-to-date high from April 16.
On the downside, the trifecta of Simple Moving Averages (SMA) is still playing as support. First is the 55-day SMA at 105.12, safeguarding the 105.00 figure. A touch lower, near 104.59 and 104.47, both the 100-day and the 200-day SMA are forming a double layer of protection to support any declines. Should this area be broken, look for 104.00 to salvage the situation.
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.
