US Dollar to close Thanksgiving in the red as markets snooze

The Greenback is unable to hold on to gains ahead of this week’s close.
US Traders are absent this Thursday as Thanksgiving and Black Friday will keep US trading desks closed.
The US Dollar Index breaks below 104 again and is facing a loss for this Thursday and for this week’s performance overall.

The US Dollar (USD) trades sideways to lower with the European trading session halfway through. Although the Greenback held good cards on Wednesday to erase this week's losses, it saw a near complete reversal in the last trading hour before going into the US bank holiday. With no US trading, Asian and European markets are sending the US Dollar Index (DXY) lower and a weekly loss looks nearly inevitable.

Today sees a very light calendar with no US data to be published. From the European front the Purchase Managers Index (PMI) numbers were already issued ahead of the US PMI numbers for Friday. Although the European numbers are still in contraction, below 50, they are soaring against the previous from October. Should Friday’s US PMI numbers decline, the shift in dynamics between European and US PMI’s could see the Greenback declining further.

Daily digest: US PMI's in focus on Friday

European purchasing manager indices numbers are showing an uptick from earlier lower levels in October, with an uptick in November in the preliminary readings.
The ceasefire deal in Gaza has been delayed by a day, and should take place on Friday.
A car explosion on the border between Canada and the US was deemed an accident with no terrorist motive at hand.
The Chinese support and funding issued on Wednesday, made the Chinese property sector jump nearly 7%.
ECB member Joachim Nagel said in early morning comments that the European Central Bank (ECB) is unsure if it has actually reached its peak rates. Rates must stay higher for longer as inflation might resurge quickly in the coming months.
Equities are mildly in the green on this US holiday. The Chinese Hang Seng is worth mentioning, up 1% near its closing bell. European equities are looking for direction while US equity futures are marginally higher in their half-day-trading regime due to the US holiday.
The CME Group’s FedWatch Tool shows that markets are pricing in a 97.8% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December. A juicy sidenote is that now 2.2% even thinks a hike might be at hand.
The benchmark 10-year US Treasury Note yield halted trading at 4.40% and will not move this Thursday with markets closed.

US Dollar Index technical analysis: Hardly moving

The US Dollar is trading weaker and has erased all its gains from Wednesday. The losses are big enough to tip the US Dollar Index (DXY) into the red this week. With this Thursday’s uptick in European PMI numbers and the US trading desks closed, a window of opportunity could open for another substantial weakening of the US Dollar this Thursday.

The DXY is right at the 200-day SMA near 103.62, and will need to have a daily close above it in order to reassure that the same 200-day SMA is valid as support. Look for a further recovery bounce towards the 100-day SMA near 104.20 with preferably a break and close above. Should the DXY be able to close and open above it later this week, look for a return to the 55-day SMA near 105.71 with 105.12 ahead of it as resistance into next week.

The 200-day SMA will try to play its role again as a crucial pivotal supportive level against any downturn. Should the index snap this level again, the psychological 100.00 level comes into play. With a very slim economic calendar and US trading desks closed, there is room for a potential big downturn.

Banking crisis FAQs

What happened during the Banking Crisis?

The Banking Crisis of March 2023 occurred when three US-based banks with heavy exposure to the tech-sector and crypto suffered a spike in withdrawals that revealed severe weaknesses in their balance sheets, resulting in their insolvency.
The most high profile of the banks was California-based Silicon Valley Bank (SVB) which experienced a surge in withdrawal requests due to a combination of customers fearing fallout from the FTX debacle, and substantially higher returns being offered elsewhere.

How did Silicon Valley Bank spread the banking liquidity crisis?

In order to fulfill the redemptions, Silicon Valley Bank had to sell its holdings of predominantly US Treasury bonds. Due to the rise in interest rates caused by the Federal Reserve’s rapid tightening measures, however, Treasury bonds had substantially fallen in value. The news that SVB had taken a $1.8B loss from the sale of its bonds triggered a panic and precipitated a full scale run on the bank that ended with the Federal Deposit Insurance Corporation (FDIC) having to take it over.The crisis spread to San-Francisco-based First Republic which ended up being rescued by a coordinated effort from a group of large US banks. On March 19, Credit Suisse in Switzerland fell foul after several years of poor performance and had to be taken over by UBS.

What was the impact of the Banking Crisis on the US Dollar?

The Banking Crisis was negative for the US Dollar (USD) because it changed expectations about the future course of interest rates. Prior to the crisis investors had expected the Federal Reserve (Fed) to continue raising interest rates to combat persistently high inflation, however, once it became clear how much stress this was placing on the banking sector by devaluing bank holdings of US Treasury bonds, the expectation was the Fed would pause or even reverse its policy trajectory. Since higher interest rates are positive for the US Dollar, it fell as it discounted the possibility of a policy pivot.

What was the impact of the Banking Crisis on the price of Gold?

The Banking Crisis was a bullish event for Gold. Firstly it benefited from demand due to its status as a safe-haven asset. Secondly, it led to investors expecting the Federal Reserve (Fed) to pause its aggressive rate-hiking policy, out of fear of the impact on the financial stability of the banking system – lower interest rate expectations reduced the opportunity cost of holding Gold. Thirdly, Gold, which is priced in US Dollars (XAU/USD), rose in value because the US Dollar weakened.

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