Jump to content

USD: US dollar strength amid economic resilience and China concerns


Recommended Posts

Explore the factors driving the recent strength of the US dollar index as resilient US economic performance counters China's growth concerns.

 

original-size.webpSource: Bloomberg

 

 

 Tony Sycamore | Market Analyst, Australia | Publication date: Wednesday 23 August 2023 

Despite the release of only second-tier US data overnight and sharply lower USD/CNY fixes (today was the third fix below 7.20), which indicates Chinese authorities' intention to slow the pace of the yuan's depreciation, the USD dollar still exhibited strength overnight.

Factors behind overnight dollar strength

Overnight US dollar strength was mainly due to EUR/USD weakness ahead of tonight's Euro Zone flash purchasing managers' index (PMIs), previewed here, and safe-haven buying. S&P's credit rating cuts on several regional US banks due to higher funding costs and their exposure to commercial real estate also contributed to this strength.

Additional support for the US dollar can also be attributed to nerves ahead of tonight's Treasury's $16-billion 20-year bond auction. Since their relaunch in 2020, 20-year bond auctions have consistently disappointed investors. With long-end yields at multi-year highs, there is minimal room for disappointment from tonight's auction.

Before currency traders shift their attention to the Jackson Hole Economic Policy Symposium, tonight sees the release of preliminary August global PMIs, which will provide further insight into the trajectory of the US economy and the Federal Reserve Bank's tightening cycle.

What is expected from the flash PMIs?

The Manufacturing PMI has only registered above 50 once in 2023, which occurred in April. For this month, the market anticipates another modest reading of 49, compared to the previous 49.

The Services PMI has been situated in an expansionary range since February 2023, supported by the transition from goods to services. However, following its peak at 54.3 in May, indications of deceleration have emerged. It is expected that there will be a third consecutive decrease in August, with the index dropping to 52.2 from the prior 52.3.

The Composite PMI is projected to decrease to 51.5 in August from the earlier reading of 52, thereby maintaining the prevailing "goldilocks" narrative—characterized by a balanced state of neither being excessively hot nor overly cold.

DXY technical analysis

During the first half of 2023, the US dollar index, the DXY, tested and maintained support at 101.00/80 on three separate occasions before declining following the release of softer-than-expected inflation data in mid-July.

Continuing our highlights since late July, the rapid recovery back above 101.00/80 revealed the post-CPI sell-off to the low of 99.57 as a false break lower. For adherents of Elliott Wave theory, this is interpreted as a Wave V low, subsequent to the culmination of a five-wave impulsive sequence originating from the high of September 114.78, as illustrated in the chart below.

With the DXY currently positioned at multi-month highs, surpassing trend line resistance, and with the 200-day moving average at the 103.50 vicinity, we anticipate the corrective rally in the DXY to recommence after the Jackson Hole event, progressing towards the subsequent upside level, represented by the peak of May 104.69.

This would be followed by year-to-date highs at 105.88. It's noteworthy that the 50% retracement of the five-wave decline, spanning from the high of October 114.78 to the low of July 99.57, stands around 107.20ish.

DXY daily chart

 

the-us-dollar-index--the-dxy--closes-at-Source: TradingView

 

 

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • image.png

  • Posts

    • Mande Network's vision of an "Onchain Credibility Hub" for Web3, powered by "Proof-of-Credibility" and a "Human Capital Network," is intriguing. Decentralized Society (DESO), this project aims to create a social network where users own their data and can monetize their content and contributions. Human Protocol (HMN), this platform connects skilled individuals with tasks and projects, focusing on building a more efficient and transparent talent marketplace. Is Mande Network the ultimate solution for valuing human capital in Web3 cause they are listed on Bitget? Maybe or maybe! It's a promising project, but there are others addressing this space. What do you think? Is Mande Network a revolutionary force in human capital valuation, or just one step in the evolution of Web3? Have you explored any other projects focused on human capital or reputation in the decentralized space? Share your thoughts in the comments!
    • Natural Gas Mode - Larger degree bullish correction Structure - Impulse wave C (circled) of Flat Position - Wave (4) Direction - Wave (4) is still in play Details:  It appears the price is now correcting lower in wave (4). Alternatively, this could be 2nd wave of an extended wave 5 of (3). We need more price data to be sure. However, the former is more likely. Natural Gas Elliott Wave Analysis Since late February 2024, natural gas has rebounded over 80% after hitting its lowest price since mid-2020. The commodity is poised to continue higher, potentially reaching new highs not seen since 2023. However, in the long term, this recovery could be part of the retracement of the bearish trend that began in October 2022, when prices were around $10.   Daily Chart Analysis: On the daily chart, a bearish impulse wave started at $10.029 in August 2022 and completed at $1.944 in April 2023. Following a bearish impulse, a bullish correction typically ensues, which is what the current price action represents. The pattern emerging is an irregular flat correction. Wave A and B (circled) concluded at $3.666 and $1.524 respectively. The price is now advancing in an impulse structure corresponding to wave C (circled). Wave C might terminate near $3.666 or possibly breach it. The impulse structure from $1.524 is crucial in determining the completion point of the corrective phase from $1.944.   H4 Chart Analysis: On the H4 chart, the impulse for wave C (circled) has completed the first three sub-waves, i.e., waves (1), (2), and (3) of the intermediate degree. The 4th wave is emerging downwards, potentially forming a zigzag structure based on its initial appearance. It appears that wave A of (C) is still ongoing, indicating that wave (4) has not yet completed. The corrective decline could extend to the Fibonacci zone between $2.56 and $2.37 before wave (5), which has the potential to reach or even exceed the $3.666 high from October 2023, starts.   Summary: Natural gas has seen a significant recovery since late February 2024, bouncing back over 80% from its mid-2020 low. This recovery is likely a part of the retracement of the bearish trend from October 2022.    On the daily chart, a bearish impulse wave concluded in April 2023, followed by an upward correction that seems to be forming an irregular flat pattern. Wave A and B have ended, and wave C is advancing. The impulse structure from $1.524 will be critical in determining the completion of the corrective phase.   On the H4 chart, the impulse for wave C has completed the first three sub-waves, with wave (4) now developing. The corrective decline might continue to the Fibonacci zone of $2.56 to $2.37 before wave (5) begins, potentially reaching or surpassing the $3.666 high from October 2023. Traders should monitor these key levels to anticipate the next phase of the bullish correction. Technical Analyst : Sanmi Adeagbo Source : Tradinglounge.com get trial here!  
    • In the ever-evolving financial markets, particularly within the realm of stock trading, fraud and scams are rampant. William Mason, a seasoned financial expert at the age of 48, has dedicated his career to investor education and protection. With his extensive experience and achievements in the finance sector, Mason provides invaluable guidance on how investors can safeguard themselves against stock market scams. Recognizing and Avoiding Stock Market Scams Despite the lucrative opportunities in the stock market, the risks are equally significant. William Mason highlights several key points that investors must always be vigilant about: Too-Good-to-Be-True Promises: Scammers often lure victims with promises of high returns and zero risk. Mason emphasizes that every investment carries inherent risks; there is no such thing as a guaranteed profit. Opaque Investment Advice: Some scams involve misleading information and fabricated expert recommendations. Mason advises investors to verify the source of information and avoid blindly trusting so-called experts. Complex Trading Systems: Overly complicated and hard-to-understand trading systems may conceal exorbitant fees and hidden risks. The “William Trend Momentum Portfolio System” advocates for clear and straightforward investment strategies, enabling investors to understand their investment positions better. Urgent Investment Opportunities: Scammers often create a sense of urgency, pressuring investors into making hasty decisions. Mason cautions that any investment requiring quick decisions should be approached with extreme caution. William Mason’s Anti-Scam Initiatives To better protect investors, William Mason has not only developed a reliable trading platform but also actively promotes anti-scam knowledge. Through blog posts, video tutorials, and social media, he shares investment experiences and educates investors on recognizing and avoiding potential scams. His app includes specific scam alerts and risk warning features, ensuring users can identify and steer clear of common scam traps during their trading activities. Mason also hosts regular online seminars, interacting with investors, answering their questions, and further enhancing their awareness of investment security. Upholding a Positive Image and Setting Industry Standards William Mason exemplifies integrity and professionalism, becoming a role model in preventing stock market scams. His actions demonstrate how a dedicated financial expert can leverage knowledge and technology to help investors avoid falling prey to fraudulent schemes. In the financial markets, preventing fraud is not just an individual responsibility but a mission for the entire industry. Through Mason’s efforts, we see how a positive industry leader can protect investors and foster a safer, more transparent investment environment. Let us all support and follow the example set by William Mason, ensuring a more secure and informed trading experience for everyone. Investors, remember: only with adequate knowledge and vigilance can you navigate the stock market successfully. Be cautious, stay informed, and together we can move towards a brighter and safer financial future.
×
×
  • Create New...
us