US Dollar surges despite dovish comments from Fed's Kashkari

The US Dollar trades up despite Fed's Kashkari confirming further rate cut path.
Although the bond market is closed, rates pushing the Greenback higher
The US Dollar Index pops above 103.00 and is testing firm resistance levels on the upside.

The US Dollar (USD) is already fired up at the start of the week and ticks higher, despite several parts of the US markets closed for Columbus Day. Despite the bank holiday, three Federal Reserve (Fed) members are due to speak. Meanwhile, the additional stimulus package from the Chinese government did not trigger any big moves in markets.

The economic calendar is thus empty due to the Columbus Day bank holiday in the US. About Fedspeak, traders will need to watch out for comments from Federal Reserve Governor Christopher Waller, who has a track record of leaving market-moving comments.

Daily digest market movers: Going against the Fed

Due to Columbus Day, the bond market is closed in the US. Equity Futures markets are open and trading.
At 13:00 GMT, Federal Reserve Bank of Minneapolis President Neel Kashkari said it appears likely that “further modest reductions” in the central bank’s benchmark interest rate will be appropriate in the coming quarters, Bloomberg reports.
Later at 21:00 GMT, Kashkari will speak again about the current state of the US economy at the Department of Economics of Torcuato di Tella University.
Around 19:00 GMT, Federal Reserve Governor Christopher Waller speaks about the US economic outlook at a conference titled "A 50-Year Retrospective on the Shadow Open Market Committee and Its Role in Monetary Policy" in Stanford, California.
Equities are starting to turn positive for this Monday with the US equity futures starting to move higher, into positive territory.
The CME Fed rate policy expectation for the meeting on November 7 stands at 88.2% for a 25 basis point rate cut, while 11.8% is pricing in no rate cut. Chances for a 50 bps rate cut have been fully priced out.
The US 10-year benchmark rate is not trading this Monday and closed on Friday at 4.10%.

US Dollar Index Technical Analysis: DXY tests vital resistance

The US Dollar Index (DXY) is orbiting around 103.00 and looking for a chance to go higher. The question on the table is whether, with a very light US calendar this week, there will be any catalyst big enough to elevate the DXY to the next level. If the Fed speakers can not do it on Monday, it looks questionable if the US Dollar Index will be able to advance any further for now.

The psychological 103.00 is the first level to tackle on the upside. Further up, the chart identifies 103.18 as the very final resistance level for this week. Once above there, a very choppy area emerges, with the 100-day Simple Moving Average (SMA) at 103.24, the 200-day SMA at 103.77, and the pivotal 103.99-104.00 levels in play.

On the downside, the 55-day SMA at 101.88 is the first line of defence, backed by the 102.00 round level and the pivotal 101.90 as support to catch any bearish pressure and trigger a bounce. If that level does not work out, 100.62 also acts as support. Further down, a test of the year-to-date low of 100.16 should take place before more downside. Finally, and that means giving up the big 100.00 level, the July 14, 2023, low at 99.58 comes into play.

US Dollar Index: Daily Chart

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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