The DXY Index recovered towards the 102.30 area, seeing 0.20% daily gains.
Medium-tier US housing data failed to trigger a significant reaction on the USD.
Middle East tensions led to Greenback demand.
The US Dollar (USD) broke ground trading on an upbeat 102.30 with 0.20% daily gains. Middle East tensions drove demand for the Greenback but the Federal Reserve’s (Fed) dovish stance may limit the bull’s momentum.
The Federal Reserve’s stance showed a surprising dovishness in last week’s decision, indicating no rate hikes in 2024 and plans for a 75 bps of easing due to the cooling inflation levels. However, the bank’s decision expectations may remain sensitive to incoming data. The Q3 Gross Domestic Product (GDP) is due on Thursday, and on Friday, the US will release November’s Personal Consumption Expenditures (CPE) Price Index, the Fed’s preferred gauge of inflation.
Daily digest market movers: US Dollar edges higher in quiet pre-holiday session
The National Association of Realtors (NAR) reported a modest increase in US Existing Home Sales in November by 0.8%, slightly defying expectations.
Upcoming economic reports include the headline and core US Personal Consumption Expenditures (PCE) Price Index, which are expected to have decreased in November.
US bond yields currently show a declining trend. Rates for the 2-year yield stand at 4.41%, the 5-year yield at 3.91%, and the 10-year yield at 3.90%.
The CME FedWatch Tool demonstrates that markets are anticipating rate cuts in March 2024.
DXY Technical Analysis: Bearish control loosens on DXY Index
The indicators on the daily chart reflect a significant bearish control over the market; however, there are also hints of potential dwindling bearish momentum. The Relative Strength Index (RSI) is in negative territory yet is displaying a positive slope. This may suggest that selling momentum is starting to wane, and buyers may be slowly stepping in.
The Moving Average Convergence Divergence (MACD) shows flat red bars, indicating that though the selling pressure maintains its presence, it’s not strengthening.
The Simple Moving Averages (SMAs) suggest that the overall course is downward, with the index perched below its 20,100 and 200-day SMAs. Despite this, the bears seem to be taking a breather after pushing the index to multi-month lows, possibly providing additional space for buyers to step in.
Support levels: 101.80,101.50, 101.30.
Resistance levels: 103.30 (20-day SMA), 103.50 (200-day SMA), 104.00.
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
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