- The US Dollar has a muted reaction on Monday with more headlines on Ukraine.
- Traders brace for headlines that could emerge from Riyadh this week.
- The US Dollar Index (DXY) is stuck in the mid 106-range and is looking for direction.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is trading flat at around 106.80 at the time of writing on Monday with markets bracing for quite some geopolitical headlines this week. The United States (US) economy is no longer an outlier, with several data points and the blood-red January Retail Sales data released last week pointing to slower economic growth. All eyes this week will be on Riyadh, in Saudi Arabia, where US and Russian officials are set to meet ahead of a meeting between US President Donald Trump and Russian President Vladimir Putin.
The economic calendar is very calm this week in the run-up to the S&P Purchasing Managers Index (PMI) data on Friday. Although the US bond market is closed due to the President’s Day bank holiday, the Federal Reserve (Fed) has three policymakers lined up to speak on Monday.
Daily digest market movers: Fed takes Monday
- US bond markets are closed on Monday due to the President’s Day bank holidays.
- Traders will need to be vigilant for any headlines coming out of Riyadh, where US and Russian officials are meeting in the runup to the meeting between US President Donald Trump and Russian President Vladimir Putin to agree on a deal for Ukraine.
- At 14:30 GMT, Federal Reserve Bank of Philadelphia Patrick Harker delivers a speech on the economic outlook at the Central Banking Series Conference at the University of the Bahamas in Nassau.
- At 15:20 GMT, Fed Governor Michelle W. Bowman delivers brief remarks on the economy and bank regulation at the American Bankers Association (ABA) Conference for Community Bankers in Phoenix, Arizona.
- Closing off this Monday, at 23:00 GMT, Fed Governor Christopher J. Waller speaks on the economic outlook at the UNSW Macroeconomic Workshop in Sydney, Australia.
- Equities start off this week with some small and cautious gains. US futures are trading and are in the green as well.
- The CME FedWatch tool shows a 46.7% chance that interest rates will remain unchanged at current levels in June.
- The US 10-year yield is trading around 4.48%, and will remain closed for trading this Monday
US Dollar Index Technical Analysis: Don’t get steamrolled
The US Dollar Index (DXY) is not expected to go anywhere this Monday with most US markets closed due to President’s Day. The main focus will be on headlines around Ukraine, where the question will be what kind of deal will be put on the table. Be on the lookout thus for false breaks on a peace deal being reached, with the aftermath resulting in a knee jerk reaction and seeing the DXY possibly rally from there on out.
On the upside, the previous support at 107.35 has now turned into a firm resistance. Further up, the 55-day SMA at 107.91 must be regained before reclaiming 108.00.
On the downside, look for 106.52 (April 16, 2024, high), 106.40 (100-day SMA), or even 105.89 (resistance in June 2024) as support levels. As the Relative Strength Index (RSI) momentum indicator in the daily chart shows room for more downside, the 200-day SMA at 104.93 could be a possible outcome.
US Dollar Index: Daily Chart
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
