- The US dollar has turned green, avoiding the new five-month low on the US dollar index.
- Traders are watching Germany increase its spending by 0.5 trillion euros.
- As Putin and Trump talk, the US dollar index recovers from the previous decline.
The US Dollar Index (DXY), which tracks the performance of the US dollar (USD) against six major currencies, traded flats at 103.60 as of Tuesday's writing, with US President Donald Trump and Russian President Vladimir Putin talking to each other. The first move came after several news headlines, with an increase in geopolitical uncertainty and important events held during the day. Any heading could be a catalyst that would go below the 103.00 level for DXY by another six months.
At the time of writing, a high-stakes meeting is taking place between US (US) President Donald Trump and Russian President Vladimir Putin, where two parties discuss territory and divide certain assets in Ukraine. This raised concerns that Ukraine would be torn apart, strengthening the European Union and North Atlantic Treaty Organization (NATO) and further boosting their defensive spending.
Meanwhile, Israel broke the ceasefire with Gaza, which began in January this morning by attacking Hamas tactical facilities and buildings. This could lead to increased attacks in the Red Sea due to retaliation from Houthi rebels and Hamas.
Daily Digest Market Mover: Headlines included
- Several data points have already been released:
- Monthly building permits were 1.456 billion, breaking an estimate of 1.45 million, below January's 1,473 million.
- The February home openings came in at 1501 million units, the expected beats of over 138 million compared to 1.366 million in January.
- The monthly export price index rose 0.1%, exceeding the expected contraction in February by 0.2%, starting from 1.3% in January. The import price index rose 0.4%, surpassing the expected contraction by 0.1%, comparing it to the positive 0.3% in January.
- Industrial production for February was announced at 13:15 GMT. The actual number was 0.7%, breaking the consensus of 0.2% in January, exceeding 0.5%.
- Stocks will be mixed again on Tuesday, with the European index increasing nearly 1% chances of German spending budget passing, while US stocks are clearly lowered by nearly 1% on split trading days.
- The CME FedWatch tool has a 99.0% chance of the Fed meeting held on Wednesday as there is no interest rate change. The current probability of a fee reduction at the May meeting is 21.5%.
- The US 10-year yield is trading around 4.30% from nearly five months printed on March 4th.
US Dollar Index Technical Analysis: Not a Linear
The US Dollar Index (DXY) will float ups and downs in the recent breakdown between 103.18 and 103.99 on Tuesday. There have been recent deterioration in US economic data, deteriorating geopolitical events, including the possibility of approval to increase spending in Germany and the call between Trump and Putin for a Ukrainian ceasefire.
If the market views current development as “selling rumors and buying facts”, some surprising benefits will come first and see it return to 104.00. If the Bulls can avoid technical rejection there, look for a higher sprint towards the 105.00 round level. The 200-day Simple Moving Average (SMA) converges at that point, enhancing this area as a strong resistance. Break that zone and you'll see a set of important levels, such as 105.53 or 105.89, as a cap.
On the downside, the 103.00 round level can be considered a bearish target in case the US rolls off again. If the market further surrenders to long-term holdings of US dollars, 101.90 is not considered.
US Dollar Index: Daily Chart
Bank Crisis FAQ
The March 2023 banking crisis came when three US-based banks with severe exposure to the tech sector and cryptocurrency suffered a surge in withdrawals that revealed serious weaknesses in their balance sheets and thus revealed they had withdrawn. The bank's most well-known is California-based Silicon Valley Bank (SVB), due to a combination of fallout from the FTX blunder and customers who fear the significantly higher returns offered elsewhere.
To redeem it was Silicon Valley Bank had to sell its holdings, primarily the US Treasury Department. However, rising interest rates caused by the rapid tightening of the Federal Reserve system have significantly reduced Treasury debt. The news that SVB had lost $1.8 billion from the sale of its bonds caused panic and a full-scale run at the bank where the Federal Deposit Insurance Corporation (FDIC) needs to take over it. On March 19, Switzerland's Credits Wisdom was fouled after several years of poor performance and had to be handed over by UBS.
The banking crisis was negative for the US dollar (USD) as it changed expectations regarding future courses of interest rates. Before the crisis, investors were hoping that the Federal Reserve would continue to raise interest rates to combat sustained high inflation, but once this underestimated bank holdings in U.S. Treasury bonds, the Fed suspended or reversed its policy trajectory. Higher interest rates are positive for the US dollar, so discounts on the possibility of policy pivots have reduced.
The bank crisis was a bullish event for Kim. First, it benefited from demand due to its status as a safe at-home asset. Second, it led investors to expect the Federal Reserve to suspend aggressive interest rate hiking policies, fearing the impact on the financial stability of the banking system. Third, gold, priced in US dollars (XAU/USD), has increased in value due to weakening of US dollars.
