The US Dollar Index began the week sharply higher across the board, despite the notable slowing down in Core PCE Price Index on Friday.
The Core PCE Price Index YoY unexpectedly declined back to 1.3% in August down from 1.4% in July, despite the fact that the estimates were to remain stable at 1.4%. This is the lowest level since November 2015.
This brings back the idea that the Federal Reserve is in a very tight corner, as Core Inflation is still declining, and the Fed is still hinting for a possible rate hike in December.
Yet, This doesn’t mean that the Fed might be able to do so, and/or the US Dollar Index might continue with the current retracement move for a while.
Why USD Is Rising Today
One of the main reasons for today’s early rally comes on the back of the political unrest in Spain, especially after Catalonia referendum, which was opposed by central government in Madrid.
The outcomes of the referendum brought back the Brexit referendum, which was a shock and has led to a complicated negotiations between Europe and the UK and so far, there is no bright light at the end of the tunnel yet.
Geopolitical Tensions Is The New Normal
Over the weekend, the US President Donald trump warned North Korea’s leader, and it looks like the US administration is not looking for any diplomatic negotiations anytime soon.
Donald Trump said on “Being nice to Rocket Man hasn’t worked in 25 years, why would it work now? Clinton failed, Bush failed, and Obama failed, I won’t fail.
He also said “I told Rex Tillerson that he is wasting his time trying to negotiate with little Rocket Man” the tweets doesn’t show any good will. Yet, Safe haven assets are on the downside since the beginning of the week while global equities are still in Green, except IBEX35 in Spain due to the current unrest there.
This move clearly shows how much the markets are adjusting well to the ongoing geopolitical tensions.
Key US Data Ahead
Later this week, all eyes will be on the US economic releases, especially the Jobs Report on Friday, which matters the most and more than any other economic releases on the calendar.
The estimates points to mixed report. First of all, the Non-Farm Employment Change is expected to add 88K Jobs in September compared to 156K in August.
On the other hand, the Unemployment Rate is expected to remain stable at 4.4% for the second month in a row.
Yet, the most important number to keep an eye on is the wages growth, the MoM Average Hourly Earnings is expected to rise by 0.3%.
Any disappointment in Wages would decrease the chances for one more rate hike by the Fed in December. In return, the US Dollar is likely to resume its down trend later this week.
USDX Levels To Watch
The US Dollar Index is testing last week’s resistance area which stands at 93.60, which held throughout last week’s trading.
This week, a break above that resistance would mean that the ongoing retracement is likely to be extended to 93.85, which is the next resistance area, followed by 94.14, where sellers are likely to appear.
Otherwise, another leg lower would be seen back to 93.0. but traders are advised not to overreact when it comes to the US data, especially that the US Dollar index posted its first monthly gain after six months of consecutive declines.
Edited by:
Nour Eldeen Al-Hammoury
Market Analyst
