The US Dollar eases back to flat ahead of PMI
Markets brace for US PMI numbers after digesting disappointing comments out of China’s National People’s Congress.
The US Dollar Index still orbits around 104.00, and PMI data could be market-moving.
The US Dollar (USD) is giving up its small gains this Tuesday with Super Tuesday taking place later today, where former US President Donald Trump is expected to further book gains in the needed votes to become the candidate for the Republican Party. Overnight, the US Dollar got a boost as markets were disappointed with the economic headlines coming from China’s National People’s Congress (NPC). Markets were expecting more stimulus from the world’s second-largest economy, and are now punishing the Chinese Yuan (CNY), which helps the Greenback gain ground.
On the economic calendar front, S&P Global will publish the final reading of the Services and Composite Purchasing Managers Index (PMI) numbers for February. More importantly for markets, the Institute for Supply Management (ISM) is set to release its own PMI data for the US Services sector. With this agenda, markets will have plenty of data to digest and to position ahead of the European Central Bank (ECB) rate decision on Thursday and other important US data releases at the end of the week.
Daily digest market movers: PMI around the corner
Tuesday’s economic calendar kicks off with the Redbook Index at 13:55 GMT. The previous reading was at 2.7%.
S&P Global will release its final Purchasing Managers Index numbers for February at 14:45 GMT:
The preliminary Services index came in at 51.3.
The Composite PMI was at 51.4, and markets don’t expect it to be revised.
At 15:00 GMT a big slew of data is to be released:
The ISM Services data for February:
The headline Services PMI is expected to fall from 53.4 to 53, still above the 50.0 threshold that signals expansion.
The Services Employment Index came in at 50.5 in January, the Prices Paid was at 64, and the New Orders Index stood at 55.
US Factory Orders for January are expected to decline 2.9% in January after a slight 0.2% increase in December..
The TechnoMetrica Institute of Policy and Politics (TIPP) will release the Economic Optimism Index for March. The indicator is expected to rise to 45.2 from 44 a month earlier.
Fed’s Vice Chairman Michael Barr is set to deliver two speeches on Tuesday: one at 17:00 GMT and one at 20:30 GMT.
Equities are disappointed with the light measures that were discussed on the first day of China’s National People’s Congress. Markets were expecting more and are sending nearly all major indices down by 0.50%. All three US equity futures are in the red as well ahead of the US opening bell.
According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 97%, while chances of a rate cut stand at 3%.
The benchmark 10-year US Treasury Note trades around 4.15%, and is trading at lower level for this week.
US Dollar Index Technical Analysis: Risk Off takes over for now
The US Dollar Index (DXY) gets a bit of a tailwind out of an unexpected corner as China disappointed markets. The measures that came out of the National People’s Congress are being written off as too little, with traders switching away their long Renminbi bets and allocating them to long US Dollar positions.
The 100-day Simple Moving Average (SMA) near 103.91 got snapped this Tuesday, where a daily close above would be quite a bullish signal. Should the US Dollar be able to cross above it, 104.60 is het next first target ahead. A firm step beyond there 105.88 comes into reach, the high from November 2023. Ultimately, 107.20 – the high of 2023 – could come back into scope.
Looking down, the 200-day Simple Moving Average at 103.74 has been broken a few times recently, though it has not seen a daily close below it last week, showcasing its importance. The 200-day SMA should not let go that easily, so a small retreat back to that level could be more than granted. Ultimately, should it lose its force, prices could fall to 103.22, the 55-day SMA, before testing 103.00.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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