US Dollar sinks as US Consumer Confidence gets blurred with a contraction for October

The Greenback trades softly in the red, seeing earlier attempts to recline failing.
US traders will hear from no less than four Fed members this Tuesday.
The US Dollar Index snaps 103 and enters in the 102-region.

The US Dollar (USD) is losing its grip again on the situation as this Tuesday is turning into red numbers again for the US Dollar Index (DXY). One of the reasons for the selling pressure emerging again after a brief spike higher, comes on the back of suprise comments from European Central Bank (ECB) member Joachim Nagel who said that the ECB might consider to start unwinding its historic bond portfolio. The selling of the bond portfolio would mean European rates staying higher for longer, and thus could even overperform against US rates, meaning more US Dollar weakness to possible come in the near future.

Besides some rather light US data points, markets can look forward to comments from no less than four US Federal Reserve members. Two of them are actually speaking twice this Tuesday, so that makes it in total seven guidance events for the markets. Expect to see traders look for clues on any further confirmation that the Fed is truly done hiking, or more tightening is needed according to some members.

Daily digest: Consumer Confidence blurred

Joachim Nagel said the ECB's balance sheet needs to shrik significantly. This would mean that with more bond supply hitting the markets, bond prices will drop and yields would soar in the eurozone. This would close the gap further in the rate differential driver between the Euro and the US Dollar, possibly even flipping into in favor of the Euro.
As mentioned in the paragraphs above, four Fed officials are due to speak:
1. Austan Goolsbee from the Chicago Fed is due to speak around 15:00 GMT and will close off this Tuesday with comments at 22:00 GMT.
2. Just five minutes after Goolsbee, Christopher Waller from the Board of directors will speak at 15:05 GMT.
3. Michelle Bowman, who sits at the Board of Governors of the Fed, will speak around 15:45 GMT.
4. Fed’s Vice Chairman Michael Barr will speak twice this Tuesday: Once at 18:05 GMT and once at 20:30 GMT.
The Redboook Index was a big beat, heading from 3.4% to 6.3%.
At 14:00 GMT the Housing Price Index for September was due and remained steady at 0.6%.
At that same time, 14:00 GMT, the Case-Shiller Home Price Index soared from 2.1% to 3.9%.
The US consumer as the Consumer Confidence for November was higher, at 102, though the downbeat revision of the previous number to 99.1 puts October into contraction and could be a sing on the wall.
The Richmond Fed Manufacturing Index for Novemberfell out of bed and went from 3 to -5, in contraction.
The US Treasury will head to markets to auction a 52-week Bill and a 7-year Note respectively at 16:30 GMT and 18:00 GMT.
Equities are continuing their decline from Monday, with nearly every major index in the red across the globe. in Asia the Hong Kong Hang Seng Index is down by 1%. European indices and US equity futures are rather mildly in the red and can still turn around the ship in the course of this Tuesday.
The CME Group’s FedWatch Tool shows that markets are pricing in a 96.6% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December. The chance for another hike is gaining by 3.4%.
The benchmark 10-year US Treasury Note traders at 4.40% and is steady after briefly hitting 4.51%.

US Dollar Index technical analysis: DXY lost steam

The US Dollar is breaking up the pattern traders saw forming over the past few days and which has led to the decline in the Greenback. US Yields are continuing to decline, narrowing the yield gap with other developed currencies. Although, the Greenback on its own is not following suit this Tuesday, breaking up the correlation, there is a risk that the correlation kicks in again later today and might see another snap lower in the US Dollar Index.

The DXY is hanging below the 200-day Simple Moving Average (SMA), which is near 103.62. The DXY could still make it back up there, should US traders come back in the market and start buying the current dip. A two-tiered pattern of a daily close and next an opening higher would quickly see the DXY back above 104.25, with the 200-day and 100-day SMA turned over to support levels.

To the downside the 200-day SMA is losing its support properties. The lows of last week at 103.18 and 102.98 would rather be seen as levels for a brief bounce. Should any of the US numbers this week be a substantial disappointment, look for even a 2.5% devaluation in the Greenback to 100.82 with little to support along the way.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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