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- US Dollar gains ground amid risk-off mood, Fed Beige Book
US Dollar gains ground amid risk-off mood, Fed Beige Book
- The US Dollar gained traction on Wednesday and trades strong against its main rivals.
- A negative market sentiment made the USD gain interest.
- Building Permits in the US from September came in better than expected. Housing Starts disappointed.
- Investors await Fed’s Beige Book report, to be released later in the session.
The US Dollar (USD) measured by the US Dollar Index (DXY) rose towards 106.60 and seems to be building strong support around the 20-day Simple Moving Average (SMA). Earlier in the session, the US reported mixed housing data and investors await the Federal Reserve’s Beige Book to continue placing their bets on the next monetary policy decisions from the American central bank. Several Fed officials will also be on the wires during the American session.
The United States’ economic activity is holding strong revealed by the latest reports including S&P Global PMIs, Industrial Production and Retail Sales. However, the Beige Book gives a clearer outlook on the current US economic situation through interviews with key business contacts, economists, and market experts gathered by each of the 12 Federal Reserve Districts.
Daily Digest Market Movers: US Dollar gains ground as markets turn cautious ahead of Fed’s Beige Book
- The US Dollar DXY rose near 106.60, seeing 0.40% daily gains.
- Building Permits from the US from September came in at 1.475M, higher than the 1.450M but still lower than the previous 1.541M.
- Housing Starts rose in September but lower than expected, coming in at 1.358M, lower than the 1.380M but above the last reading of 1.269M.
- The Fed’s Beige Book will provide a clearer outlook on the US economic activity and labour market situation.
- In the meantime, US yields are slightly rising, and the 2, 5 and 10-year rates rose to 5.21%, 4.92% and 4.91% respectively.
- According to the CME FedWatch tool, the odds of a 25 bps hike in the December meeting rose to nearly 42%.
Technical analysis: US Dollar Index’s bulls step in and present battle at the 20-day SMA
The DXY index managed to jump back above the 20-day Simple Moving Average (SMA) of 106.25, and technical indicators gained some ground on the daily chart on Wednesday. In the broader context, the index arguably remains in a bullish trend overall, holding above the key 200 and 100-day Simple Moving Averages (SMA).
With the Relative Strength Index (RSI) pointing north above 50 and the Moving Average Convergence Divergence (MACD) printing lower red bars – both are sending mildly supportive signals.
Supports: 106.20 (20-day SMA), 106.00, 105.80.
Resistances:106.70, 107.00, 107.30.
Risk sentiment FAQs
What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?
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.
What are the key assets to track to understand risk sentiment dynamics?
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.
Which currencies strengthen when sentiment is "risk-on"?
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.
Which currencies strengthen when sentiment is "risk-off"?
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.
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