U.S. DOLLAR ANALYSIS
- Drop in U.S. client confidence – ACT 109.5; EST 111.
- Greenback depending on Omicron knowledge.
- Deal with Powell and Yellen speech.
NOVEMBER U.S. CONSUMER CONFIDENCE DOWN
Precise and revised knowledge for U.S. client confidence got here in decrease than estimates (see financial calendar beneath). Hesitancy round virus considerations could possibly be weighing down on confidence within the U.S.. Preliminary greenback reactions have been muted as I consider extra focus is being positioned on Fed Chair Powell’s testimony working concurrent to the information launch (extra particulars beneath).
U.S. CONSUMER CONFIDENCE (NOV):
Supply: DailyFX economic calendar
DOLLAR FUNDAMENTAL BACKDROP
DOVISH RE-PRICING IS THE NAME OF THE GAME!
The U.S. Dollar Index (DXY) opened buying and selling considerably decrease right now as Omicron fears re-emerged, carrying safe-haven currencies just like the Japanese Yen (JPY) and Swiss Franc (CHF). A press release from the Moderna CEO rippled by markets after mentioning the doubtless want for brand spanking new vaccines though proof for that is rumour presently.
U.S. Treasury yields have dropped testing November lows, whereas considerations across the impact of the virus on financial progress have priced out a June 2022 price hike.
U.S. 10-YEAR TREAUSURY YIELDS:
Markets now favor a later begin and goal for September 2022 (see desk beneath) to start mountain climbing. That is the beginning of what looks as if ‘dovish re-pricing’ and will damage greenback bulls ought to the pattern proceed. Readability across the new pressure will permit for markets to give attention to the financial knowledge with out virus contamination.
FED INTEREST RATE PROBABILITIES:
Fed Chair Jerome Powell and Treasury Secretary Janet Yellen are at the moment testifying in entrance of the U.S. Senate Banking Committee and U.S. Home of Representatives Monetary Companies Committee. Key dialogue factors embody:
- The U.S. debt ceiling.
- Inflation considerations – which could possibly be buoyed by Omicron induced provide chain points.
- Economic progress – as delta variant triggered disruptions to U.S. labour market.
Latest discuss increasing the speed of asset purchases (taper) could possibly be positioned on the again burner for now whereas extra knowledge is required across the new variant.
The present risk-off market sentiment may see the DXY falling short-term till virus doubts subside. Decrease yielding currencies together with CHF, EUR and JPY are unlikely to depreciate additional in opposition to the USD because the greenback was by far probably the most hawkish of the group till now. These three low yielding currencies make up a lot of the DXY which is why I don’t foresee any bullish upside however relatively consolidatory/draw back price action. This being stated, optimistic Omicron information may resume the greenback uptick as fundamentals stay supportive (robust financial progress and elevated inflation).
The week forward consists of a number of excessive influence occasions together with PMI and NFP prints. Optimistic releases may add additional stress and complexity to the Fed’s outlook. Knowledge misses could permit for the Fed to justify a extra affected person strategy within the midst of virus uncertainty and help additional dovish revisions.
USD ECONOMIC CALENDAR:
Supply: DailyFX economic calendar
U.S. DOLLAR INDEX DAILY CHART
Chart ready by Warren Venketas, IG
DXY is now testing the medium-term channel resistance zone (black), coinciding with the 20-day EMA (purple). Preliminary response to client confidence knowledge has been comparatively subdued as talked about above however regulate Fed Chair Powell’s testimony for readability across the Fed’s outlook. A every day candle shut beneath channel resistance may deliver subsequent help ranges into consideration.
- Channel help/20-day EMA (purple)
Contact and comply with Warren on Twitter: @WVenketas