- The Dollar rebounds for the third consecutive day this week, although it flirts with stability.
- US yields continue to rise and are approaching the 5% threshold again.
- The Dollar Index advances after breaking above 106.00 and flirts with 107.00 for this week.
He US dollar (USD) is losing its gains this Thursday as a slew of upbeat US data is no match for the European Central Bank and its president Christine Lagarde. During the verbal communication, Lagarde is pushing the Euro higher against the Dollar, erasing all the losses incurred earlier in this trading session. Despite the doomsday outlook for the Eurozone, and refraining from issuing any forward guidance, markets perceive this as an attempt by the ECB to keep its hands free to cut at any time in order to provide much-needed oxygen to the economy. of the EU.
As for the economic data, no less than thirteen data were published at the same time, around 12:30 GMT. Almost all of the data was an encouraging surprise and shows an astonishing performance of the US economy. Once the dust begins to settle on this day of trading and its data points and the ECB press conference and communication, the Dollar should prevail on the back of this.
Daily Summary: US Dollar Tests Euro
- The European Central Bank (ECB) has kept its reference rates unchanged at 4%, issuing a statement in which it states that it will keep its rate stable for longer to combat high levels of inflation in the eurozone.
- At 12:30 GMT a large amount of US data was released:
- Initial jobless claims stood at 210,000, up from 198,000 previously. Continuation Applications also rose, from 1,727,000 to 1,790,000.
- The Personal Consumption Price Index (CPI) for the third quarter recorded a drop from 3.7% to 2.4%.
- Gross Domestic Product (GDP) data for the third quarter: the price index component went from 1.7% to 3.5%. The annualized growth rate went from 2.1% to 4.9%.
- Preliminary durable goods data for September: The general index greatly exceeded expectations, going from -0.1% to 4.7%. The component without transportation remained stable at 0.5%.
- Around 12:45 GMT, ECB President Christine Lagarde gave her speech and guidelines. The highlight was that she repeated several times that the EU economy is weak and that the ECB is refraining from any forward guidance for the moment. Apparently there has been no talk of rate cuts.
- During that same ECB press conference, around 13:00 GMT, headlines or comments from Federal Reserve member Christopher Waller were expected. Although apparently nothing was issued on monetary policy.
- US real estate data will be released around 14:00 GMT, with home sales pending: Sales are expected to decline 1.5% in September compared to the previous month, less than the 7.1% drop seen in August . On an annual basis, pending home sales fell 18.3% in August.
- The Kansas City Fed manufacturing index for October is expected around 15:00 GMT. The previous reading was -13.
- The US Treasury will try to repay two tenors this Thursday: at 15:30 a 4-week bill will be auctioned, and at 17:00 GMT a 7-year note will be distributed.
- Stocks are seeing investors flee ahead of this Thursday’s volatility: Asian stocks sink more than 1% in Japan and Chinese stocks fall 0.5%. European stocks do not expect any help from the ECB this Thursday, and fall more than 1%. In the US, stock futures are moving off the lows and could jump into the green if the intraday rally continues.
- CME Group’s FedWatch tool shows that markets are pricing in a 97.1% chance that the Federal Reserve will keep interest rates unchanged at its November meeting.
- The 10-year US Treasury yield is trading at 4.92%, returning to the feared 5% level. The million-dollar question is what will happen when the benchmark index breaks above 5% again.
Technical analysis of the Dollar Index: The rate differential continues to be the greatest support for the DXY
The US dollar is climbing the ladder again after being in the gutter earlier in the week. The Dollar is returning to its throne as the US Dollar Index DXY shoots higher and could even stretch further. The element of risk looming over a potential DXY implosion hangs in the balance, with the 10-year US bond yield flirting with 5% again.
The DXY has consolidated above 106.00 and looks set to continue rising. It is possible to break above the 106.92 level. If the bulls reclaim this level, 107.00 will be on the hunt.
On the downside, the recent resistance at 105.88 did not do a good job of supporting any downturn and has now completely lost its importance. Instead, look for 105.12, which is a fundamental history line and almost matches the 55-day SMA to keep the DXY above 105.00, and which already ran well ahead on Tuesday. If this level fails, a large air pocket could form and see the DXY fall to 103.74, near the 100-day SMA, before finding broad support.
Central Banks Frequently Asked Questions
What does a central bank do?
Central banks have a key mandate to ensure price stability in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant rise in the prices of the same goods means inflation, a constant fall in the prices of the same goods means deflation. It is the central bank’s job to keep demand in line by adjusting its interest rate. For the largest central banks, such as the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
What does a central bank do when inflation is below or above the expected target?
A central bank has an important tool to raise or lower inflation: modify its reference interest rate. At pre-communicated times, the central bank will issue a statement with its reference interest rate and give additional reasons why it maintains or modifies it (cuts or raises it). Local banks will adjust their savings and loan rates accordingly, which in turn will make it harder or easier for citizens to make a profit on their savings or for companies to borrow and invest in their businesses. When the central bank substantially raises interest rates, we speak of monetary tightening. When you reduce your reference rate, it is called monetary easing.
Who decides monetary policy and interest rates?
A central bank is usually politically independent. Members of the central bank’s policy council go through a series of panels and hearings before being appointed to a position on the policy council. Each member of that council usually has a certain conviction about how the central bank should control inflation and the subsequent monetary policy. Members who want a very loose monetary policy, with low rates and cheap loans, to substantially boost the economy, while settling for inflation slightly above 2%, are called “doves.” Members who prefer higher rates to reward savings and want to control inflation at all times are called “hawks” and will not rest until inflation is at 2% or just below.
Is there a president or head of a central bank?
Typically, there is a chair who leads each meeting, has to create a consensus between the hawks and the doves, and has the final say when votes need to be divided to avoid a 50-50 tie on whether to adjust current policy. The president will give speeches, which can often be followed live, in which he will communicate the current monetary stance and outlook. A central bank will try to push its monetary policy forward without causing wild swings in rates, stocks, or its currency. All central bank members will channel their stance toward markets ahead of a monetary policy meeting. A few days before a monetary policy meeting is held and until the new policy has been communicated, members are prohibited from speaking publicly. This is what is called the blocking period.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
