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US Dollar holds on to Tuesday’s gains ahead of JOLTS while markets choke

  • The US Dollar trades firmly in the green against its peers.
  • Equity markets are erasing their positive start of the week. 
  • The US Dollar Index jumps back above 104.00 and holds on to gains during European trading session. 

The US Dollar (USD) trades back in the green on Tuesday in an attempt to recoup Monday’s losses. The Greenback is rallying supported by substantial safe-haven inflows as most major equity markets are in the red. The move sparked during the Asian trading session, with the Indian Nifty index falling over 5%, as Prime Minister Narendra Modi’s victory appears to be narrower than what polls were predicting.  

On the economic front, all eyes are on some important indicators that could further confirm the slightly downbeat sentiment surrounding the US economy. The main event will be the US JOLTS Job Openings report for April. Although this is a lagging number, job openings have been decreasing for several months in a row and a further decline could further confirm the end of that US exceptionalism. 

Daily digest market movers: The going gets tough

  • Just ahead of the US session the US Dollar remains strong on the quote board against its peers, with only safe havens Japanese Yen (USD/JPY) and Swiss Franc (USD/CHF) outpacing the Greenback in the broad risk off surge that is taking place ahead of the US numbers.
  • The Redbook Index for this week will be published at 12:55 GMT. The previous number showed a 6.3% increase.
  •  At 14:00 GMT, the JOLTS survey will be released.
    • Job Openings in April are expected to fall further to 8.34 million from 8.488 million a month earlier. 
    • Factory Orders for April are expected to increase 0.6% in April, slowing from the 1.6% rise seen in March. 
  • The TechnoMetrica Institute of Policy and Politics (TIPP) will release its Economic Optimism Index for June. The index is expected to increase to 45.2 from 41.8 in May. 
  • Equities are falling across the globe with the more than 5% sell-off in Indian equities. European indices are down near 1%, while US equity futures are losing less than 0.50%.
  • According to the CME Fedwatch Tool, Fed Fund futures pricing data suggests a 38.4% chance for keeping rates unchanged in September, against a 52.6% chance for a 25 basis points (bps) rate cut and a 8.9% chance for an even 50 bps rate cut. An interest rate hike is no longer considered an option since this week. For the upcoming meeting on June 12, futures are fully pricing in an unchanged result. 
  • The benchmark 10-year US Treasury Note trades around 4.39%, and trades not far from its monthly low at 4.34%. 

US Dollar Index Technical Analysis: Once risk on returns

The US Dollar Index (DXY) is seeing Dollar bulls fighting with knives between their teeth. The DXY might be popping back up above 104.00 this Tuesday, but this would happen for all the wrong reasons. Simply because equities are heading lower, the US Dollar is seeing some safe-haven flows. The recent appreciation should not be seen in correlation with the recent softening in the US economy, which could still bring more easing in the Greenback over the coming weeks and months. 

On the upside, the DXY  first faces the double belt of resistance in the form of the 200-day Simple Moving Average (SMA) at 104.43 and the 100-day SMA at 104.42. Next up, the pivotal level near 104.60 comes into play. Topside for now is forming around 105.00, with the 55-day SMA at 105.00 and the peak from recent weeks at 105.12.

On the downside, the Greenback is trading in that air pocket area in which the 104.00 big figure looks to be holding. Once through there, another decline to first 103.50 and even 103.00  are the levels to watch. With the Relative Strength Index (RSI) still not trading in the oversold level, more downside room is still under consideration. 

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.