US Dollar sprints higher with traders getting nervous on Fed Minutes

by · FXStreet
  • The US Dollar is having positive returns against nearly every G10 currency on Wednesday. 
  • Chinese markets have sold off again this Wednesday for the second day in a row on weak Golden Week numbers. 
  • The US Dollar Index trades above 102.50 and looks to be on its way to 103.00.

The US Dollar (USD) is recovering for this week and even turns positive for this week with markets still having concerns over China. Recent Chinese data released on domestic activity during the Golden Week revealed that there has been less spending as anticipated. This keeps concerns on China’s economic activity – both domestic and international – high on the bulletin board. 

The economic calendar is again a very light one for this Wednesday. Besides a few light data points such as the Wholesale Inventories for August, the main event will be the release of the Federal Open Market Committee (FOMC) Minutes, curtailing the latest Federal Reserve rate decision in September. Markets will get to see the reasoning behind the 50 basis points rate cut and what it means for the November rate decision. 

Daily digest market movers: Markets are not at ease

  • Concerns on China are still keeping markets in a choke hold. Chinese equities are still selling off with the Hang Seng Index down near 1.5% at the closing bell. The Shanghai Composite fell over 7%. 
  • Germany has revised down its 2024 Gross Domestic Product (GDP) into contraction of 0.2%, Bloomberg reports.
  • At 11:00 GMT, the Mortgage Bankers Association has contracted further this week, by 5.1%, a pickup from the smaller 1.3% contraction last week.  
  • At 14:00 GMT, August Wholesale Inventories are due. Expectations are for a steady 0.2% growth as seen in July. 

  • Two Fed speakers on the docket this Wednesday:

    • Around 16:30 GMT Federal Reserve Vice Chair Phillip Jefferson (a neutral FOMC member according to FXStreet’s Fed Tracker) delivers a speech at an event organized by the Charlotte Economics Club in Charlotte, North Carolina.
    • At 22:00 GMT, Federal Reserve Bank of San Francisco President Mary Daly (also neutral according to the Fed Tracker) participates in a moderated conversation and a Q&A session at Boise State University.
  • The US Treasury is heading to markets to auction a 10-year Note at 17:00 GMT. 
  • European equities are turning green with small gains, while US equity futures are still struggling with minor losses ahead of the US Opening Bell. 
  • The CME Fedwatch Tool shows an 88.6% chance of a 25 basis point (bps) interest rate cut at the next Fed meeting on November 7, while 11.4% is pricing in no rate cut. Chances for a 50 bps rate cut have been fully priced out now. 
  • The US 10-year benchmark rate trades at 4.03%, the highest level since mid-August. 

US Dollar Index Technical Analysis: US outperforms Europe again

The US Dollar Index (DXY) is setting the record straight, back at the high of September and looks set to head higher. With a very chunky area of several pivotal levels just above 103.00, the question is how far this rally can go. Taking into account the Relative Strength Index (RSI), a test at 103.18 looks possible, but 104.00 looks to be out of the question. 

The psychological 103.00 is the first level to tackle on the upside. Further up, the chart identifies 103.18 as the very final resistance level for this week. Once above there, a very choppy area emerges, with the 100-day Simple Moving Average (SMA) at 103.30, the 200-day SMA at 103.76, and the pivotal 103.99-104.00 levels in play. 

On the downside, the 55-day SMA at 101.96 is the first line of defence, backed by the 102.00 round level and the pivotal 101.90 as support to catch any bearish pressure and trigger a bounce. If that level does not work out, 100.62 also acts as support. Further down, a test of the year-to-date low of 100.16 should take place before more downside. Finally, and that means giving up the big 100.00 level, the July 14, 2023, low at 99.58 comes into play.

US Dollar Index: Daily Chart

German economy FAQs

What is the effect of the German Economy on the Euro?

The German economy has a significant impact on the Euro due to its status as the largest economy within the Eurozone. Germany's economic performance, its GDP, employment, and inflation, can greatly influence the overall stability and confidence in the Euro. As Germany's economy strengthens, it can bolster the Euro's value, while the opposite is true if it weakens. Overall, the German economy plays a crucial role in shaping the Euro's strength and perception in global markets.

What is the political role of Germany within the Eurozone?

Germany is the largest economy in the Eurozone and therefore an influential actor in the region. During the Eurozone sovereign debt crisis in 2009-12, Germany was pivotal in setting up various stability funds to bail out debtor countries. It took a leadership role in the implementation of the 'Fiscal Compact' following the crisis – a set of more stringent rules to manage member states’ finances and punish ‘debt sinners’. Germany spearheaded a culture of ‘Financial Stability’ and the German economic model has been widely used as a blueprint for economic growth by fellow Eurozone members.

What are German Bunds?

Bunds are bonds issued by the German government. Like all bonds they pay holders a regular interest payment, or coupon, followed by the full value of the loan, or principal, at maturity. Because Germany has the largest economy in the Eurozone, Bunds are used as a benchmark for other European government bonds. Long-term Bunds are viewed as a solid, risk-free investment as they are backed by the full faith and credit of the German nation. For this reason they are treated as a safe-haven by investors – gaining in value in times of crisis, whilst falling during periods of prosperity.

What are German Bund Yields?

German Bund Yields measure the annual return an investor can expect from holding German government bonds, or Bunds. Like other bonds, Bunds pay holders interest at regular intervals, called the ‘coupon’, followed by the full value of the bond at maturity. Whilst the coupon is fixed, the Yield varies as it takes into account changes in the bond's price, and it is therefore considered a more accurate reflection of return. A decline in the bund's price raises the coupon as a percentage of the loan, resulting in a higher Yield and vice versa for a rise. This explains why Bund Yields move inversely to prices.

What is the Bundesbank?

The Bundesbank is the central bank of Germany. It plays a key role in implementing monetary policy within Germany, and central banks in the region more broadly. Its goal is price stability, or keeping inflation low and predictable. It is responsible for ensuring the smooth operation of payment systems in Germany and participates in the oversight of financial institutions. The Bundesbank has a reputation for being conservative, prioritizing the fight against inflation over economic growth. It has been influential in the setup and policy of the European Central Bank (ECB).

 

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