- The US dollar trades mostly stable in very calm holiday trading
- Japan's monthly industrial production fell 2.3%, lower than the expected 3.5% decline, and major Chinese manufacturers also reported lower profits.
- The US Dollar Index (DXY) has fallen below 108.00 but is still near its two-year high.
The US dollar (USD) has been slightly weaker this Friday, the market remains cautious due to the Christmas holiday, and the DXY index has been unable to maintain its position above 108.00 due to a lack of staff on trading desks. do not have. The dollar failed to react to further developments in Asian markets, with data suggesting a further contraction in Japan's industrial production and Chinese industrial companies reporting lower profits.
Friday's US economic calendar is very light due to preliminary goods trade balance figures and wholesale inventory data. No major changes are expected from these data points. Therefore, a fairly stable trading session is expected.
Trends in the daily digest market: Expanding deficit
- Both data points from the US will be released this Friday.
- The goods trade balance in November was a deficit of $102.9 billion, compared to the previous deficit of $98.7 billion, exceeding the forecast of $100.8 billion.
- Wholesale inventories decreased 0.2% in November versus the previous 0.2% and consensus estimates.
- Stock trading was mixed on Friday, with U.S. stock futures all trading in the red before the opening bell.
- The CME FedWatch tool for the first Fed meeting of 2025 on January 29 gives an 89.3% chance that policy rates will remain stable and a slim 10.7% chance of a 25 basis point cut.
- The US 10-year benchmark interest rate is trading at 4.59%, not far from this week's high of 4.64%.
Technical analysis of the US dollar index: stay calm without getting your hopes up
The US Dollar Index (DXY) is not expected to attack solid levels this Friday, given low liquidity and fewer market participants between Christmas and New Year. No major moves are expected unless external events occur on the geopolitical front. DXY looks set to head into New Year's Eve trading just above 108.00.
On the upside, the trend line starting from December 28, 2023 is acting as an upper bound. The next strong resistance level is the July 14, 2022 high of 109.29, which has a good track record as an important level. Beyond this level, the 110.00 round level applies.
The first downside barrier is at 107.35, which has now turned from resistance to support. The second level that could stop the selling pressure is 106.52. From there, even 105.53 could be considered while the 55-day simple moving average (SMA) of 105.83 rises to that level.
US dollar index: daily chart
Frequently asked questions about risk sentiment
In the world of financial terminology, two terms are widely used: “risk-on” and “risk-off” to refer to the level of risk that an investor is willing to accept during a given period of time. In a “risk-on” market, investors are optimistic about the future and are more willing to buy risky assets. In a “risk-off” market, investors begin to “play it safe” out of fear for the future, so they buy low-risk assets that are guaranteed to yield a relatively small return.
Typically, during “risk-on” periods, the stock market rises, and so do the values of most commodities, except gold. This is to benefit from positive growth prospects. The currency of a country that is a large exporter of primary products will appreciate due to increased demand, and the virtual currency will appreciate. In a “risk-off” market, bonds, especially major government bonds, rise, gold shines, and safe-haven currencies such as the Japanese yen, Swiss franc, and US dollar all profit.
Minor currencies such as the Australian dollar (AUD), Canadian dollar (CAD), New Zealand dollar (NZD), ruble (RUB) and South African rand (ZAR) all tend to rise in “riskier” markets. This is because the economies of these currencies rely heavily on commodity exports for growth, and commodity prices tend to rise during risk-on periods. High economic activity This is because investors are anticipating an increase in demand for raw materials in the future.
The major currencies that tend to appreciate during “risk-off” periods are the US dollar (USD), the Japanese yen (JPY), and the Swiss franc (CHF). The U.S. dollar is the world's reserve currency, because investors buy U.S. government bonds in times of crisis, and is considered safe because the world's largest economy is unlikely to default. The yen is due to increased demand for Japanese government bonds, and since a high percentage of the value is held by domestic investors, there is little chance of a fire sale of government bonds even in times of crisis. The Swiss Franc is a popular choice because Switzerland's strict banking laws provide investors with greater capital protection.
