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- US dollar advances, bolstered by strong ISM Services PMI
US dollar advances, bolstered by strong ISM Services PMI
- The DXY Index sees upward movements threatening the 20-day SMA near the 104 level.
- The US service sector expanded in November, according to the ISM.
- Investors keenly await the Unemployment Rate and Nonfarm Payrolls reports due this Friday.
The US Dollar (USD), gauged by the US Dollar Index (DXY), is edging higher, currently trading near 104.00 while posing a threat to the 20-day SMA at 104.05. This movement has been largely attributed to releasing a better-than-expected Institute for Supply Management (ISM) Services PMI for November.
Meanwhile, investors are focusing on key employment figures due for release this Friday – specifically the November Unemployment Rate and Nonfarm Payrolls data – as they could suggest further directional moves for the greenback.
Despite cooling inflation in the US economy and mixed labor market and economic activity signals, the Federal Reserve (Fed) continues to refrain from ruling out further policy tightening. This somewhat hawkish stance coincides with the release of key labor data this week, which could dramatically shift market expectations.
Daily Market Movers: US Dollar gains momentum with boost from strong ISM Services PMI
- US Dollar trades with a strong note on Tuesday, threatening the 20-day SMA near the 104.00 mark.
- The Institute for Supply Management’s November report revealed the ISM Services PMI exceeded consensus and previous figures by coming in at 52.7, further propelling the US Dollar's advance.
- The latest report from US Bureau of Labor Statistics indicated that October JOLTs Job Openings fell by nearly 600K to 8.733 million. This figure was well below the consensus of 9.35 million.
- Looking ahead, important upcoming economic releases include the Unemployment Rate, Nonfarm Payrolls, and Average Hourly Earnings on Friday. These figures will hold significant implications for investors and the US Dollar's trajectory as they could shape the next Fed decisions.
- Current market expectations from the CME FedWatch Tool indicate that a no hike is priced in for the December meeting and that markets are now pricing in rate cuts for mid 2024.
Technical Analysis: US Dollar bullish momentum strengthens, buyers threaten the 20-day SMA
The indicators on the daily chart clearly depict a strengthening of bullish momentum for the US Dollar. Although in negative territory, the Relative Strength Index (RSI) shows a positive slope, while the Moving Average Convergence Divergence (MACD) is printing rising green bars, offering confirmation of prevailing bullish strength.
Evaluating the longer-term scenario, the index is currently positioned beneath the 20 and 100-day Simple Moving Averages (SMAs) but above the 200-day SMA. This means that overall, whilst experiencing some pressure in the short-term, bulls persistently show their presence in the broader picture. That picture hints at a firm upward trajectory. In case buyers advance and conquer the 20-day SMA, further green may be seen in the short term.
Support levels: 103.60, 103.30, 103.15, 103.00.
Resistance levels: 104.10 (20-day SMA), 104.40 (100-day SMA), 104.50.
US Dollar FAQs
What is the US Dollar?
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.
How do the decisions of the Federal Reserve impact the US Dollar?
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.
What is Quantitative Easing and how does it influence the US Dollar?
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.
What is Quantitative Tightening and how does it influence the 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.
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