- USD steadies amid strong economic data releases.
- Retail Sales from July came in strong as well as weekly Jobless Claims.
- Markets continue confident outlook about a September cut by the Fed.
The US Dollar (USD), measured by the US Dollar Index (DXY), consolidated and rose toward the 102.90 level during Thursday’s trading session. This was influenced by strong data reported by the US, but steady dovish bets continue to limit the USD upside.
The US economy is persisting above the trend, suggesting that the market may once again be leaning too heavily into firm easing.
Daily digest market movers: USD steadies as Retail Sales and Jobless Claims beat expectations
- Retail Sales rose 1% MoM to $709.7 billion in July, according to the US Census Bureau. This figure surpassed the expected 0.3% increase and compensated for the 0.2% dip in June.
- Retail Sales ex Autos also rose noticeably by 0.4%, beating the expected 0.1%.
- In addition, Initial Jobless Claims for the week ending August 10 came in at 227K, better than the expected 235K and down from the previous week’s revised figure of 234K.
- According to the CME FedWatch Tool, odds now point to an 80% chance of a rate cut in September, and markets remain overconfident of 200 bps of easing in the next 12 months though that will depend on incoming data.
DXY technical outlook: Bias remains bearish but showing signs of stabilization
DXY’s technical outlook remains bearish, despite some indications of stabilization. The index is positioned below the 20, 100 and 200-day Simple Moving Averages (SMAs), confirming the established bearish bias. Momentum-based indicators such as the Relative Strength Index (RSI) is now hovering around 40, showing signs of stability despite persisting selling pressure.
The Moving Average Convergence Divergence (MACD) also demonstrates red bars that have stabilized deep in the negative region. Though there is a notable shift in momentum, the overall technical narrative does not project a significant bullish rebound just yet.
Support Levels: 102.40, 102.20, 102.00 Resistance Levels: 103.00, 103.50, 104.00
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
