US Dollar tries to recover losses as US session supports Greenback

The Greenback squares back earlier losses.
US yields are plunging as markets gear up for a possible US recession at hand.
The US Dollar Index is looking for support and might need to drop another 1% at a minimum.

The US Dollar (USD) is trying to shake off its doom and gloom feeling from Friday. The disappointing US jobs report shows the US economy is stuttering, while delinquencies on mortgages, loans and credit card bills are soaring. Several traders are starting to cash in on their long USD trade, which means selling pressure is taking over.

On the economic data front a very calm week lies ahead overall with not many pivotal or focal points. If we need to name one, then best chances are jobless numbers on Thursday, which could either confirm or disprove the sudden rise in the rate of unemployment printed on Friday in the US jobs report. Overall a very calm start of the week with no real data points to mention.

Daily digest: US Dollar turns flat into US session

Headlines around Israeli troops surrounding Gaza city, and Egypt finally opening up its borders for refugees, are making headlines.
The Ukraine-Russia war is at a stalemate with no advances of any kind on both fronts. It appears that talks could be underway in this environment as no party is able to claim victory.
The US Treasury is hitting the markets with a debt auction this Monday, placing a 3-month and a 6-month Bill auction near 16:30 GMT.
Later this Monday near 19:00 GMT, the Loan Officer Survey will be published.
Asian equities are soaring, with all indices in the region up above 1%. European futures are looking for clues and are flat, with US equity futures unphased.
The CME Group’s FedWatch Tool shows that markets are pricing in a 90.2% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December.
The benchmark 10-year US Treasury yield trades at 4.61%, retreating further after its peak above 5% a few weeks ago.

US Dollar Index technical analysis: US Dollar back to square one

The US Dollar is no longer speculators’ favoured trade this year. The change of heart comes after the US jobs report was a bit of a disappointment with a less positive number than had been estimated and the unemployment index rising to 3.9%. Investors are taking their money and are getting out of the US Dollar Index ahead of any possible announcement from the US Federal Reserve that it might start to cut its policy rates, in order to avoid or ease any possible recessions in the US economy and growth.

The DXY is looking for support near 105.00, though it is struggling to find it. Any shock events in global markets could spark a sudden turnaround and favour safe-haven flows into the US Dollar. A return first to 105.51 would make sense, near the 55-day Simple Moving Average (SMA). A break above could mean a test on the descending trend line near 105.88.

On the downside, a big air pocket is developing and could see the DXY drop to 103.98, near the 100-day SMA, before finding ample support. In case it turns into a falling knife, 103.52 with the 200-day SMA could act as circuit break. If that one snaps as well, the road is open to head to 101.00.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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