US Dollar enters fourth day of consecutive losses ahead of Powell testimony

Published on March 6, 2024

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Filip Lagaart
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The US Dollar trades softer across the board on Wednesday.
US Federal Reserve Chairman Jerome Powell is heading to Capitol Hill for his semi-annual testimony.
The US Dollar Index snaps an important support, looking bleak ahead of the ECB decision and NFP data.

The US Dollar (USD) is facing some firm selling pressure on Wednesday ahead of the semi-annual testimony from US Federal Reserve Chairman Jerome Powell at Capitol Hill. Traders are being thrown left and right by mixt data, blurring the projections on the timing of the expected rate cuts from the Fed, if any for this year. This results in a four-day losing streak for the Greenback ahead of Powell’s testimony, the European Central Bank (ECB) meeting on Thursday and the US Nonfarm Payrolls data on Friday.

On the economic calendar front, some appetizers are being provided for traders to dig their teeth in. The ADP Private Payrolls was a small miss on expectations and the JOLTS job openings reports later will shed some more light on how the job market is doing. However, traders are expected to keep their powder dry before Powell’s speech, which is expected to be published when he takes his seat before the Congressional hearing committee.

Daily digest market movers: ADP small miss

At 12:00 GMT, the weekly Mortgage Applications number was released. The previous number was a 5.6% declin, with an increase to 9.7% for this week.
ADP has released its Private Employment number for, and saw the actual number come in at 140,000 in stead of the expeted 150,000. The previous number got revised up from 107,000 to 110,000.
At 15:00 GMT, Wholesale Inventories for January will be released, with expectations of another mild 0.1% contraction as was seen in December.
JOLTS Job Openings data for January, also at 15:00 GMT, are expected to fall from 9.026 million to 8.9 million.
US Federal Reserve Chairman Jerome Powell will make his statement and reply to questions from Congress at 15:00 GMT. Normally markets will react even before he sits as the statement will be released by the Federal Reserve just minutes before the speech takes place.
The Fed speak for this Wednesday does not stop with Powell. San Francisco Fed President Mary Daly will be speaking around 17:00 GMT, followed by Minneapolis Fed President Neel Kashkari around 21:15 GMT. In between both speakers, the Fed’s Beige Book will be released as well.
Equities are pushing forward in their recovery and are seeing accelerated gains in the ADP print aftermath. The Nasdaq is leading the rally with a near 1% jump 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 4.13%, roughly sideways seeing last week’s range.

US Dollar Index Technical Analysis: Down, though not KO just yet

The US Dollar Index (DXY) is seeing traders getting a bit ahead of themselves with pressure building on a pivotal support level in the DXY. The 200-day Simple Moving Average at 103.73 is being snapped again, already the fifth time in three weeks. With the actual three main events still to take place, it looks like a few traders fear missing out and might get caught up on the wrong side of the trade with their prepositioning.

The 100-day Simple Moving Average (SMA) near 103.88 got snapped on Tuesday, though it still needs a daily close above it to deliver a bullish signal. Should the US Dollar be able to cross above it, 104.60 is the 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 103.73 is being snapped again. Adding the element that it has not seen a daily close below it last week, it showcases 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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