NZD/USD: the New Zealand dollar is rising at the end of the weekThe NZD/USD currency pair is actively strengthening, updating peaks since February 2 and checking the possibility of a breakout through 0.6120. The fundamental background of the market remains stable. The US dollar was supported by recent statements by members of the Federal Reserve System, including Jerome Powell, who indicated a preference for a more cautious approach to raising the cost of loans. This reduces the probability of an interest rate cut by 25 basis points in March to less than 20%, shifting the focus to the May meeting of the regulator.Meanwhile, the New Zealand dollar came under pressure after Chinese inflation data for January was published: the annual consumer price index fell by 0.8% after the previous reading of -0.3%, which turned out to be worse than the expected -0.5%. The monthly consumer price index rose 0.3%, accelerating from 0.1%.Resistance levels: 0.6130, 0.6155, 0.6192, 0.6221.Support levels: 0.6100, 0.6060, 0.6030, 0.6000.AUD/USD: pullback after takeoff balanced the gains of the session on TuesdayThe AUD/USD currency pair is experiencing mixed emotions at the auction, not exceeding the critical mark of 0.6500. The previous day recorded a significant drop in the Australian dollar, effectively canceling the growth gains recorded on Tuesday after the decision of the Reserve Bank of Australia (RBA).As expected, the RBA left the key rate at 4.35%, while in a statement stressing the expectation of a moderate decrease in inflation to the upper limits of the target range by 2025. This indicates a cautious approach to changing monetary policy, although the bank will continue to monitor global economic conditions. The further weakening of the Australian dollar was provoked by domestic economic statistics: the index of manufacturing activity from the Australian Industry Group (AiG) for December showed a decline. The Australian currency is also under pressure from data on consumer inflation in China, which slowed more than expected in January, indicating a slowdown in domestic demand and possible consequences for Australian exports of raw materials.Resistance levels: 0.6500, 0.6543, 0.6569, 0.6600.Support levels: 0.6480, 0.6450, 0.6400, 0.6356.USD/JPY: January bank lending growth in Japan was 3.1%In the Asian trading session, the USD/JPY currency pair shows moderate growth, stabilizing near the level of 149.40 and reaching new peaks since November 27.Current statistics from Japan indicate the difficulties faced by the country's economy: the index tracking consumer spending dropped from 51.8 to 50.2 points in January amid the ongoing onslaught on household financial well-being. This is confirmed by the correction of the household expenditure index in December from -1.0% to -0.9% on a monthly basis and from -2.9% to -2.5% on an annual basis. In parallel, the volume of bank lending in January increased from 3.0% to 3.1%. However, the country's balance of payments for December, adjusted for seasonal fluctuations, showed a decrease from 1925.6 billion yen to 744.3 billion yen, which was significantly lower than analysts' expectations of 1018.9 billion yen.Resistance levels: 150.30, 151.80.Support levels: 147.90, 145.90.USDX: the chance of a US rate cut in March is 20%, according to analystsToday, during the Asian session, the US dollar stabilized at 104.00 in the USDX index after it restored the highs on November 14 at 104.40, aiming to end the week with a slight increase.The strengthening of the dollar was provoked by the statements of the chairman of the US Federal Reserve Jerome Powell. He stressed the need to wait for further evidence of a steady decrease in inflation before deciding to lower interest rates, which forced analysts to reassess expectations and reduce the likelihood of monetary policy easing to 20% in March and to 60% in May.The market's attention was focused on the latest data on the state of the US labor market, released the day before. According to these data, the number of initial applications for unemployment benefits decreased from 227.0 thousand to 218.0 thousand for the week ended February 2, and the number of repeated applications for the week ended January 26 decreased from 1.894 million to 1.871 million, which supported the dollar. However, by the end of the day, the Bulls had lost most of their gains. Now investors are waiting for data on consumer inflation in the United States, which will be published on Tuesday at 15:30 GMT+2.Resistance levels: 104.24, 104.70, 105.20, 105.82.Support levels: 103.60, 103.00, 102.45, ...
DXY (US Dollar Index) Analysis for January 2024The Dollar Index (DXY) ended 2023 with a predictable decline that saw the US currency lose more than 5% of its value in two months, breaking below 102.00p and hitting a 6-month low.The dollar sagged after a sharp decline in US inflation convinced the Federal Reserve (Fed) to reverse its tight monetary policy, which has seen the key interest rate rise to 5.5% over the past year. November's U.S. consumer price index data showed that the inflation rate fell to 3.1%, the lowest in a year and a half. However, the core CPI, which excludes food and energy prices, remains at 4%.Analysts foresee a further decline in core inflation in the near future. An obvious downtrend is also seen in industrial inflation, which fell from 1.2% to 0.9% in November, while the core producer price index adjusted from 2.3% to 2%. Experts from Citi forecast that in the first quarter of 2024, a further easing of inflationary pressures will contribute to lower consumer activity and renewed selling in the hydrocarbon market, driven by fears of weak global economic growth prospects. Citi expects U.S. inflation to continue to move toward the 2% target, even without additional steps by the Fed to tighten monetary policy.In response to easing inflationary pressures, the Fed at its December meeting left the key rate unchanged at 5.5%, recognizing that it had reached the restrictive level necessary for a gradual decline in inflation. Thus, the regulator's management confirmed that there was no need for further rate hikes, which had been considered as a baseline scenario back in November. The updated forecasts show that the interest rate could fall to 4.6% in 2024, which implies at least three rate cuts, followed by four more in 2025 and three in 2026.At the press conference, Jerome Powell confirmed that officials have started discussing the timing of easing financial conditions, which further undermined the dollar's position in forex currency trading. Market participants believe that the first rate cut could come in March. According to the FedWatch Tool, the probability of such a scenario is now estimated at 78% and continues to grow as additional signals confirming the negative impact of high interest rates on the national economy emerge. For example, the latest U.S. industrial activity reports indicate that the economy has been stagnating for the past three months. The PMI index of the manufacturing sector in December decreased from 49.4 to 48.2. In case of deterioration of economic conditions in the U.S. in early 2024, traders will be convinced of the inevitability of the Fed's interest rate cut. Against this backdrop, the dollar is expecting a prolonged decline, the beginning of which we saw back in late 2023.Our DXY positionSell Stop 100.50Take-Profit 90.00 Stop-Loss ...
The Dollar Index remains at October lows and is trading near the 103.80 level at the moment.Last week's US inflation report crashed the US currency as the consumer price index fell from 3.7% to 3.2% in October and core inflation fell from 4.1% to 4.0%. This was significantly higher than analysts' forecasts, allowing investors to hope for the end of the Fed's rate hike cycle. The probability of a December act of monetary restraint has fallen to almost zero. Moreover, some optimists believe that the Fed will start monetary expansion as early as next March.The day before, the minutes of the last Fed meeting were published, according to which, the regulator assumes the possibility of further tightening of financial conditions in case of inflationary pressure growth. In addition, the majority of FOMC members believe it is necessary to keep rates at high levels until inflation reaches 2%. Nevertheless, the markets reacted weakly to this publication.Also pressure on DXY was exerted by the statistics of the US real estate market. In October, home sales in the secondary housing market fell by 4.1%.Today the data on jobless claims and the report on durable goods orders will be released. If the statistics will again be worse than forecasts, the decline in the dollar will continue.Putting a pending forex order to sell DXY.Sell-stop 103.00 take-profit 100.00 stop-loss ...
Trading idea for the dollar index (DXY) for August 25The dollar index leads among other forex currency indices and reached 104.15 on Friday, moving further away from the local low of 101.50.At the same time, it should be noted that DXY is growing despite the weak macroeconomic reports of the United States. So on Wednesday, business activity indices were released, which turned out to be significantly worse than expected. In particular, the activity of the manufacturing sector fell from 49 to 47 pp, in the service sector from 52.3 to 51. The composite index sank from 52 p to 50.4 p. The release reduced the yield of treasury bonds by more than 1.5%.Yesterday, investors were disappointed by the data on orders for durable goods, which sank by 5.2% in July. At the same time, the report on applications for unemployment benefits recorded 230 thousand applications with a forecast of 240 thousand.Today, the main event of the day and week will be Jerome Powell's speech at the economic symposium in Jackson Hole (14:00 GMT). Buyers of DXY hope that the head of the Fed will confirm the regulator's intentions to continue the rate hike cycle. Sellers expect that weak US statistics will force the Central Bank to abandon monetary restriction and even consider switching to monetary policy easing.FedWatch Tool estimates the probability of a rate hike in September by 25 basis points as 39%. If Jerome Powell declares his readiness to keep the rate at current values until the end of the year, the dollar will go into a sharp decline with the target marks of 101.00 and 100.00.We will set a pending order for the sale of DXYSell-limit 104.50take-profit 101.00stop-loss ...
The year 2022 on world markets will largely be determined by the tightening of monetary policy in the United States, and the first week of the new year confirmed this. The minutes of the Fed's December meeting published last week showed a significant tightening of the position of the regulator's representatives – Fed members believe that the rate can be raised as early as March, and also see a faster reduction in the balance sheet as appropriate. Representatives of the regulator believe that the current economic conditions are already in many ways conducive to tightening the labor market, some even noted the recovery of the labor market already sufficient for such actions, although the majority still expects further improvement in the labor situation. Against this background, it is worth noting the publication of December labor data in the United States, which came out ambiguous. On the one hand, employment in December increased by only 200 thousand. The Bloomberg consensus forecast assumed an employment growth of 450 thousand, and the actual growth rate of the indicator was the lowest since the beginning of 2021. Nevertheless, in many respects such weak employment growth is explained by seasonal adjustment, and the unemployment rate in December fell more than expected. Thus, the indicator has updated the next lows since the beginning of the pandemic, dropping to 3.90% against the expected 4.10%. The unemployment rate continues to approach a historic low of 3.40%, and labor statistics have further increased fears in the market of an imminent tightening of the PREP in the United States. As a result, on Friday, the yields of ten-year US treasuries at the moment exceeded 1.80% per annum - the maximum since the beginning of the pandemic. Today they have returned to these levels again.This week, the dynamics in the market will continue to be determined by expectations for the actions of regulators - investors will follow the statements of representatives of the Fed and the ECB, as well as the publication of price data in the United States for December. Statistics published last week showed an increase in inflation in the EU to 5.00% YoY. As a result, the topics of price growth in December updated the historical maximum, while analysts expected a slight slowdown in price growth. The situation on the supply side also has high inflation in the United States. The December business activity indices indicated a slight easing of logistical problems, however, the further deterioration of the epidemiological situation again intensified disruptions in logistics chains, which does not lead to a significant slowdown in price growth. The FAO World Food Price index fell in December for the first time since July, but food inflation remains at elevated levels. Against this background, US inflation data is likely to continue to bring the Fed rate hike closer, intensifying the negative in the markets.The main event for the oil market in early 2022 was the OPEC+ meeting. However, as expected, it was decided to stick to the current plan to increase production. Nevertheless, the cartel lowered its forecasts for a surplus in the oil market, which allowed Brent crude futures to exceed the level of $80/bbl. Moreover, against the background of interruptions in the supply of black gold from Kazakhstan and Libya, quotations were close to $83/bbl. However, at the end of the week they declined from these levels, today Brent futures are growing by 0.35% and are trading around $82.05/bbl. The main negative for oil this week may be related to the potential strengthening of the dollar amid expectations of a tightening of the PREP in the United States. However, in the absence of a significant strengthening of the dollar, Brent futures may still exceed the levels of $83/bbl– - the quotes may be supported by another weekly decline in oil ...
What thought comes to mind when you read the "Big Mac Index"? Most people will probably think of the McDonald's logo. But for those who are interested in finance, this index can be much more important than just a hamburger.What is the Big Mac Index?The Big Mac index really directly refers to the "Big Mac" of McDonald's. McDonald's is a huge global network of fast food enterprises, covering more than 70-80% of the globe. The Big Mac is used as a reference point for the economy, based on how much the Big Mac costs in each of the countries, which reflects the cost and value of different currencies. The Big Mac burger is used because it is sold in every existing store.Big Mac Index in 2020Country - Price, USDAustralia - 4,13Brazil - 3,63Canada - 4,81Germany - 4, 52Russia - 1,79Spain - 4,52USA - 5,67The famous annual review of The Economist magazineWhen The Economist magazine first introduced the Big Mac Index in 1986, it was conceived as a fun and entertaining way to calculate purchasing power parity. Thirty-four years later, this index has become one of the most quoted and reliable in the world standard, which traders rely on and which is also taught in many economic textbooks.What is purchasing power parity?Purchasing power parity is an economic theory known as a "basket of goods". Purchasing power parity is used as a benchmark to calculate whether the two currencies being compared are in equilibrium.Read more: What is a Benchmark in investment and tradingThe levels are tested through the prism of a fixed set of consumer goods and commodities. The two currencies must be in balance when both are placed in the basket, and must have the same value in each country.In the case of the Big Mac Index, the price of the famous McDonald's Big Mac is the benchmark used to determine purchasing power parity. The theory states that fluctuations in the exchange rate between currencies affect the price that consumers will eventually pay for a hamburger.Why you might be interested in using purchasing power parity for forex tradingFor traders who do not know, purchasing power parity (PPP) is an indicator that is used to compare economic variables, since they differ in different countries. One of the key attributes of the model is that it is formed without taking into account changes in exchange rates and possible distortions.This is the problem of forex traders who want to use this model in their daily trading. Forex traders need data on exchange rates to make informed investment decisions.Unlike purchasing power parity, the Big Mac index is based on differences in exchange rates and directly reflects the value and devaluation of currencies. This makes it a much more effective indicator for forex traders. The Big Mac is also a material object, and not a concept, like purchasing power parity.Read more: What is the devaluation of currencyWhy the Big Mac Index can be a great tool for forecasting the forex marketSince its creation in 1986, the Big Mac index has been a valuable tool for forex traders who wanted to find a connection between the long-term forecast of a currency and its exchange rate. Traders who use the index to predict the market perceive discrepancies between the index and the real exchange rate as a measure of potential future correction of exchange rates. In other words, the index connects the Forex market with commodities and shows the direction where the market can go.As is the case with most theories, this correlation only works until it stops working. Since the cost of a hamburger can be influenced by various factors, the exchange rate is not always an accurate indicator of the strength and direction of the market.But the main reason why the Big Mac is not a reliable indicator is that it does not take into account small short-term fluctuations in the foreign exchange market.It only works for the long term and, therefore, will not help those traders who need to understand the short term. In combination with other indicators, the Big Mac index is an excellent tool that you should be able to use.Example of the Big Mac index in actionLet's look at the following example:If the cost of a Big Mac from McDonald's is $3.75 in the US and 2 pounds sterling in the UK, the exchange rate is expected to be 1.875 (3.75 USD/2 GBP). When the dollar exchange rate rises, the Big Mac index tells us that the pound is overvalued. If the dollar is declining, the index tells us that the pound is undervalued.Why the Big Mac Index can be misleadingInitially, the index was supposed to be more entertaining, since it was far from perfect. McDonald's can influence the index because they make a decision about the cost of their Big Mac burger. Another big disadvantage is that the Big Mac burger does not have any rigid characteristics. Each country has its own type of Big Mac burger, which differs in size, ingredients, and type of bun.Traders can use the Big Mac index as an indicator of commodities.Conclusions about the Big Mac IndexThe Economist came up with the Big Mac Index in 1986 to use it to determine whether currencies are at their "exact" level.Over the past years, this index has become a world standard, many scientific studies have been devoted to it, and it is included in textbooks on economics.Read more: About the Big Mac Index and its ...
The dollar fell against the Canadian dollar and hovered near multi-month lows against European currencies on Tuesday as Treasury bond yields were little moved amid expectations the US Federal Reserve will not raise interest rates in the near future.Dallas Fed President Robert Kaplan reiterated on Monday that he does not expect interest rates to rise until next year, lowering expectations that inflationary pressures could force the Fed to change policy sooner than stated.Read more: Causes of inflation and scientific approaches to their studyThe yield on 10-year US Treasury bonds stood at 1.6454%, continuing a decline from last week's five-week high.The dollar index to a basket of six major currencies was down 0.19% to 89.991 by 09:34. The euro rose 0.25% to $1.2181, close to its lowest level since February 26. At the same time, the pound rose 0.31% to $1.4178. The British currency was supported by the lifting of coronavirus restrictions in the UK.The Canadian dollar rose 0.31% against the US dollar to $1.2029, almost hitting a six-year high, thanks to higher oil prices. "The Aussie rose 0.46% to $0.7799. The New Zealand dollar rose 0.58% to $0.7242.The mainland yuan rose 0.2% to 6.4257. The Japanese yen rose 0.1 per cent paired with the dollar, to 109.08 yen.In the cryptocurrency market, bitcoin rose 3.81% to $45.255 but remained near a three-month low following tweet from Tesla CEO Elon Musk. Etherium rose 7.58% to $3,529.95, recovering from a two-week low hit on Monday.Read more: The history of Federal Reserve (Fed) and its ...