Fxequity

U.S. Greenback Fades on ISM Manufacturing PMI Miss


U.S. DOLLAR ANALYSIS

  • ISM (DEC) – ACT:58.7;EST:60.1.
  • Market unphased by Omicron.
  • Bull flag sample stays.

ISM PMI FALLS BUT POSITIVES SEEN IN OTHER METRICS

The ISM manufacturing PMI knowledge launch for December got here in beneath expectations (58.7) leading to preliminary greenback weak spot nevertheless, higher than anticipated employment figures might favor the hawkish rhetoric at present flooding the market. Inflation however may very well be waning and the Fed’s fierce stance on curbing inflation could also be premature. As a rule of thumb, a print above 50 displays and increasing manufacturing sector and vice versa which leaves the U.S. manufacturing sector in stable footing. All eyes flip to Non-farm payrolls (NFP) later this week for additional steerage.

ISM MANUFACTURING PMI (DEC):

ISM Manufacturing PMI (DEC)

Supply: DailyFX economic calendar

DOLLAR FUNDAMENTAL BACKDROP

POSITIVE START TO 2022 FOR THE U.S. DOLLAR

Yesterday, the IHS Markit PMI knowledge was launched for the U.S. and got here in roughly in keeping with expectations (see calendar beneath).

MARKIT MANUFACTURING PMI (DEC):

Markit manufacturing PMI (DEC)

Supply: DailyFX economic calendar

Regardless of the slight undershoot, the dollar rallied on the again of upper U.S. Treasury yields as a consequence of elevated Fed price hike expectations. The primary price hike since 2018 is at present projected in March of this yr in line with the Fed’s implied charges beneath. U.S. 10-year Treasury yields have prolonged their upside surge at this time giving additional impetus to the buck. Outlook for 2022 is more likely to see yields push in direction of the 2% mark which might see a robust right here for the DXY. Charge hike timing and communication may also be key to keep away from market shocks due to the frequency anticipated as a consequence of rising inflationary pressures.

FED INTEREST RATE PROBABILITIES:

Fed interest rate probabilities

Supply: Refinitiv

Considerations across the Omicron variant are being shelved by monetary markets in expectation that there will probably be minimal financial impression from this pressure of COVID-19.

TECHNICAL ANALYSIS

U.S. DOLLAR INDEX DAILY CHART

DXY daily chart

Chart ready by Warren Venketas, IG

For the reason that bullish breakout from the medium-term channel (black), the DXY has consolidated within the type of a bull flag pattern (blue). Price action has held inside this band since late November however might push increased ought to we see a every day candle shut above flag resistance. This may then deliver into focus the 97.00 psychological handle as soon as extra. Lengthy-term, the U.S. greenback outlook stays firmly bullish within the present basic backdrop.

Resistance ranges:

Assist ranges:

Contact and comply with Warren on Twitter: @WVenketas





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