To assess the current state of the economy and future trends, investors use various tools: GDP dynamics, stock indexes, unemployment, inflation, PMI business activity index, producer inflation, consumer expectations indicator, etc. But in addition to stock indexes, you can also analyze the value of the national currency of the United States - the dollar.Since the stock market is an integral part of the economy, as integral as the dollar in the economy, the dynamics of the value of the national currency can serve as signals potentially important for the investor. The dollar is the main currency of international settlements, the main world reserve currency, the main volume of debt obligations in the world is issued in US dollars. Therefore, the value of the dollar is a kind of barometer not only of the US economy, but also of the world economy. The dollar has its own index - the DXY dollar index (DXY or USDX tickers).In this article, we will look at what the US dollar index DXY is, how it is calculated and how to interpret the dynamics of its value.What does the US dollar index DXY meanThe US dollar Index (DXY) is a calculated indicator of the market value of the US dollar relative to the "basket" of monetary units of the countries - the most important trading partners of the United States. The index basket consists of 6 currencies: euro, Japanese yen, British pound sterling, Canadian dollar, Swedish krona and Swiss franc.We can say that indirectly, the index value characterizes the dynamics of US exports, because with its growth, the demand for the dollar also increases.To calculate the index, currencies are assigned different weights in accordance with the shares of currencies in US international trade:At the time of the index's creation, to a greater extent, it was they who held the primacy in the foreign trade turnover of the United States. More than half of the weight (57.6%) has the euro, and the share of the smallest component – the Swiss franc - is 3.6%. Based on the weight of each currency pair, it can be concluded that the role of the euro in the formation of the dollar index is several times higher than that of other currencies.The DXY index is calculated using the weighted average geometric calculation method. Each national currency of the US partners from the currency basket of the index has its share of influence on the USDX index. The formula has the following form:The index value reflects the change in the ratio of the dollar to other currencies compared to its base value. The coefficient 50.14348112, which is involved in the calculation formula as the first term, was selected in such a way that the initial value of the index was 100 p. The power coefficients are equal to the shares of the corresponding currencies in the index base.The growth of the index indicates an increase in the value of the dollar compared to the "basket" of currencies, i.e. its strengthening, and vice versa, its decline indicates that it has become weaker. If the index value is greater than 100, then the strength of the dollar has increased by the corresponding amount. And, conversely, when the dollar price decreases, the index decreases.History of the US dollar index DXYThe calculation of the dollar index began in 1973 after the termination of the Breton Woods Agreement. In accordance with this agreement, for a long time, the currencies of 44 countries were pegged to the dollar, which, in turn, was backed by gold ($35 per troy ounce (gold standard).In 1973, the United States refused to link to gold, because its reserves in the United States were limited to a certain amount, and the dollars secured by gold were not enough for the development of world trade. Since then, countries have switched to floating exchange rates of national currencies.In the same 1973, the DXY index was created as a barometer evaluating the "paper" dollar in relation to other currencies. Initially, the basic basket of the index included 10 currencies, of which 8 were European. The base of the index has changed only once – in 1999 in connection with the formation of the eurozone and the emergence of the euro. The euro replaced 5 currencies of European countries from the index. Until 1999, the most significant currency for calculating the USDX index was the national currency of Germany – the German mark.The initial value of the index was taken as 100 p. The following index calculation results are measured as a ratio to the base value.Initially, the US dollar index was developed by the US Federal Reserve System in 1973 to obtain the average value of the US dollar weighted by foreign bilateral trade, freely floating against world currencies. Now the index is calculated by the ICE exchange holding (Intercontinental Exchange, Inc.). The calculation is made daily, once an hour. There are no regular adjustments or rebalancing of the ICE US dollar index.The values and dynamics of the dollar index may be different, but the following values are taken as benchmarks.More than 100 pp. – similar values indicate the strength of the dollar relative to other national currencies from the index basket.Equal to 100 p.p. – this means that the dollar is at the level of the other currencies of the index basket.Less than 100 pp. – this indicates the weakness of the US national currency.As can be seen on the graph, the maximum index value (160 pp.) was fixed in 1985, the minimum (72 pp.) - during the 2008 crisis. At the time of publication of the article (10.08.2022), the index value is 106.303 pp. This means that the value of the dollar has increased by 6,303 p.p. compared to the baseline value. This is the highest value in the last 20 years.Thus, the DXY index measures how the dollar price changes on the world market.What does the dynamics of the dollar index DXY indicateThe specificity of the DXY dollar index is that its dynamics cannot be interpreted unambiguously. Unlike conventional currencies, which fall when the country's economy deteriorates, the US dollar can strengthen both during economic growth in the US and during a global recession or economic downturn. This feature is due to the fact that the dollar is the world's reserve currency and plays a unique global role in the global economy. On the one hand, investors see the American currency as an opportunity to make money on the economic recovery, on the other hand, they consider the dollar as a relatively safe asset that will allow them to survive difficulties while saving their savings. This feature is called the "dollar smile theory". There are 3 phases in the behavior of the dollar:Phase 1 – Dollar growth due to increased risk aversion. The dollar is strengthening with a decrease in the growth rate of the global economy and an increase in risks in the markets. In such a situation, in order to avoid possible losses or minimize them, investors exit risky assets and direct funds to the dollar, which is considered a "safe haven currency". At this stage, the investor's goal is to preserve, not increase, the available capital. In addition, to invest in US Treasury bonds that are considered risk-free in any economic situation, dollars are also needed, which leads to increased demand for them and an increase in the exchange rate.Phase 2 - Economic recession and recession. At this stage, the economy is showing signs of slowing down or even recession, and the Fed is starting to cut interest rates. Investors are starting not to buy, but to sell the dollar in order to switch to currencies that can provide higher returns. Demand for the dollar is weak, which leads to its fall.Another factor is the relative economic efficiency of the United States and other countries. The US economy may not necessarily be stagnant, but if its economic growth is weaker than in other countries, then investors will prefer to sell US dollars and buy the currency of a country with a stronger economy. As a result, the lower part of the "smile" is formed - the dollar is falling.Phase 3 – Economic growth. The values of fundamental indicators are beginning to indicate an improvement in the economic situation, i.e. the phase of economic growth. Companies are increasing production, there are signs of economic recovery. Investors' risk appetite is returning. Thus, with stronger GDP growth in the US economy compared to other countries, the dollar is also strengthening. Thus, the key factor in the dynamics of the dollar index is relative economic growth. If the economy of the "rest of the world" can grow faster than the US economy, this will lead to a weakening of the US dollar. If the US economy is growing faster, then the US dollar will grow. In fact, the influx of foreign money into American enterprises and investments leads to an increase in the value of the dollar.An example of such a scenario is the 2008 crisis. In mid-2008, investors sought stability during the crisis period in the form of investing in the dollar, which led to its strengthening. As the situation normalized and the crisis processes slowed down, the focus of investors' interests began to shift to more profitable and risky instruments. This flow of capital led to a significant drop in the US dollar in early 2009. The recovery of the US economy from the crisis caused an increase in demand for the dollar and, as a result, its strengthening until the end of the 1st half of 2010.The factor of updating the highs of the dollar value relative to world currencies from the reserve basket in 2022: the Fed started tightening monetary policy earlier than other major central banks (against which the yield of government treasury bonds began to rise), the problems of the eurozone, the devaluation trend in the euro and yen, the weakness of stock markets. All this together makes American investments more profitable, because now they promise higher profits. Finally, investors and analysts are concerned about the global recession – the dollar is traditionally considered the most reliable asset in turbulent times.Let's take a closer look at how the change in the dollar index affects the dynamics of some investment instruments and the economy of enterprises.BondsThe increase in the profitability of investments in US Treasury bonds is accompanied by an increase in the DXY index. Bonds are traditionally considered the lowest-risk assets that allow you to save capital. At the same time, in order for them to be attractive for investment, their profitability should be higher than the inflation rate.Currently, due to an increase in the interest rate and an increase in bond yields, investors are starting to exit riskier assets of other countries, i.e. there is a flow of funds into the dollar for further investments in bonds. In addition, due to the unstable global economic and geopolitical situation, the demand for the most risk-free instruments is growing. This leads to a strengthening of the dollar.StocksA stronger dollar is not always good for equity investors. It means:A decrease in the profits of exporting companies and global corporations from sales of products in other countries.An increase in the costs of exporters, which leads to an increase in prices for the goods they produce and, as a result, a decrease in competitive advantage.Increasing the costs of foreign companies operating in the United States.Thus, the growth of the DXY index signals a weakening of the US stock market, i.e. the dollar index is basically moving opposite to the S&P 500 index.Such a decline in the market is due to the fact that a strong dollar makes imports cheaper and exports more expensive and less competitive in world markets. The rising dollar affects the profits of many global corporations.Exporting companies and global corporationsCompanies that supply their products around the world make more profit with a weak dollar.The high values of the DXY index, i.e. the growth in the value of the dollar negatively affects US exports. In this case, the volume of goods purchased by other countries decreases, because they need more of their own currency to buy the same volume. That is, US companies face the following consequences of the strengthening of the dollar:Decrease in the volume of exports.Margin reduction, as a result of a decrease in the volume of funds received, including for the development of the company. In this case, there is a significant adverse effect of exchange rate fluctuations.The weakening of the exchange rate of a foreign currency against the US dollar adversely affects the company's sales and revenues denominated in a foreign currency (other than the dollar), and usually leads to the company raising prices in other currencies to compensate for the strengthening of the US dollar, potentially reducing demand for its products. If in some cases, for some reason, the company decides not to raise prices, this negatively affects the profit that the company earns in US dollars: when converting foreign exchange earnings into US dollars, the company receives less (since the dollar has become more expensive).Importing companiesA strong dollar benefits US importers. With the growth of the dollar, imports for American companies become cheaper, and they can make more profit. For companies in other countries that import products from the United States – on the contrary, because they have to spend more of their currency to buy goods or raw materials.Commodity marketsPricing for most commodities occurs in the US dollar due to its role as the leading reserve currency. Local production costs and consumer prices can be expressed in different currencies, but for wholesale deliveries, the US dollar is used as a means of exchange. Over time, the growth of the dollar usually leads to a decrease in commodity prices, while the weakness of the reserve currency is a factor in the growth of prices in commodity markets. An increase in the DXY index leads to a decline in all commodity markets.Below is a graph of oil prices and the DXY index, which shows the inverse correlation of the dollar index with oil prices.In addition to the impact of the dollar's value on financial and commodity markets, it is worth mentioning separately the following global consequences for the economies of other countries:An increase in the debt burden on the budgets of countries that have dollar loans. After all, it is a well-known fact that the bulk of the world's debt obligations are denominated in US dollars. US banks actively lend not only to companies and businesses, but also to entire states. With the growth of the dollar, borrowers have to pay more on their debts.Emigration of capital from countries. When the national currency (other than the dollar) weakens, it forces large businesses and investors to withdraw funds from the economy of this country, which is an additional factor in the weakening of the local currency.Negative impact on economic growth. The effect of the dollar's growth is felt by importing companies, manufacturers who are heavily dependent on imported components from the United States. In the conditions of modern global globalization, it is difficult to find production facilities that are 100% provided by local markets. This is especially true for the production of complex technological products. To maintain output volumes at the same level, manufacturers need to spend more money on purchases, which often leads to losses. Therefore, a compromise option is to reduce the volume of output. On the scale of the country's economy, this means a drop in GDP.Pros and cons of the DXY Dollar IndexLike any other indicator, the US dollar index has its pros and cons:AdvantagesExtensive use of the index. The index is calculated around the clock.Availability of futures and options on the index. Index futures can act as a leading indicator of the movement of currency pairs. For example, if a bearish candle appears on his chart, it may mean that a surge will occur on the currency charts.Allows you to analyze the value of the dollar with more objectivity than the dynamics of a single currency pair.DisadvantagesA small number of currencies in the index, as well as a large proportion of the euro, which, when it fluctuates, leads to significant distortions and inadequate index values.It has stable power coefficients that do not correspond to the current modern structure of the US foreign trade turnover. The weights were last changed in 1999 after the introduction of the euro and have remained unchanged since then. However, much has changed in trade relations with the United States. For example, China, South Korea and Mexico have become key trading partners of the United States. The diagram below shows the structure of US foreign trade turnover in 2021:For a more adequate reflection of the US trade balance with other countries, the Fed calculates the Trade-weighted Dollar Index (TWDI). The basket of this index includes 26 currencies. Currency weights are recalculated annually. However, despite such a large number of currencies compared to the DXY index, the dynamics of the indices are almost the same due to the fact that the euro also has a lot of weight in TWDI.ConclusionThe US dollar index is a synthetic instrument reflecting the current dynamics of the price of the US currency. The index shows the strength or weakness of the US dollar more objectively than in relation to any one currency. This tool is used in their work by traders, investors, stock analysts. It gives a correct assessment of currency market trends and all assets in dollars. The global economic situation largely depends on the state of the American economy. The strength of the dollar can be considered as a temperature indicator not only of the US economy, but also of the global economy.The dynamics of the index indicates certain trends in the economy, but it is impossible to assess the current situation and trend by only one indicator. Moreover, the specificity of the index lies in the fact that the dynamics may indicate completely opposite trends – the dollar index shows its growth both during economic growth and during recessions. Therefore, the index can act as one of the tools in the investor's arsenal, but it is always necessary to conduct a comprehensive analysis of a number of macroeconomic ...
Рыночные корреляции казались несинхронными, поскольку трейдеры готовились к отчету по индексу потребительских цен в США и серии выступлений членов FOMC, которые повлияли на политические ожидания ФРС и общие настроения.Биткойн вновь поднялся до новых рекордных максимумов, в то время как сырая нефть колебалась в ответ на опасения, связанные с добычей.Анализ экономических показателей за 13 ноябряКвартальный индекс цен на заработную плату в Австралии в третьем квартале составил 0,8% кв/кв (ожидалось 0,9%, ранее было 0,8%).Член Комитета по ценным бумагам и биржам Кэтрин Манн предположила, что инфляция не была “побеждена”, указывая на то, что политики могут подождать со снижением ставокОбщий индекс потребительских цен в США в октябре составил 0,2% м/м, как ожидалось; годовой индекс потребительских цен вырос с 2,4% до 2,6%, как ожидалось; Базовый индекс потребительских цен совпал с ожиданиями на уровне 0,3% м/м.Члены FOMC призвали к осторожности в отношении будущих снижений ставок:Официальный представитель FOMC Кашкари отметил, что денежно-кредитная политика, вероятно, удерживает инфляционные ожидания на прежнем уровнеОфициальный представитель FOMC Логан подчеркнул необходимость осторожности при принятии решения о степени снижения ставокОфициальный представитель FOMC Мусалем выступил за умеренно ограничительную политику, пока инфляция остается выше целевого уровня в 2%.Член FOMC Шмид заявил, что “еще предстоит выяснить”, насколько еще ФРС может снизить ставкиБаланс федерального бюджета США снизился с профицита в 64,3 млрд долларов до дефицита в 257,5 млрд долларов (ожидаемый дефицит в 226,4 млрд долларов).Индекс цен на продовольствие в Новой Зеландии снизился на 0,9% м/м в октябре после предыдущего роста на 0,5%Изменение цен на рынкеТорги на азиатской сессии в среду прошли в беспорядке, когда дело дошло до корреляции рисков, поскольку высокодоходные активы, такие как сырьевые товары, акции США и криптовалюты, двигались в разных направлениях. В частности, золото и нефть марки WTI выросли на бычьей ноте, в то время как биткоин и акции снизились.Доходность казначейских облигаций и доллар начали снижаться в преддверии публикации индекса потребительских цен в США, который совпал с ожиданиями и спровоцировал первоначальное снижение на фоне фиксации прибыли. Менее оптимистичные комментарии FOMC позволили паре BTC/USD набирать обороты на пути к новым историческим максимумам, близким к $ 94 тыс., в то время как индекс S&P 500, похоже, также выиграл от публикации индекса потребительских цен, но в конечном итоге закрылся без изменений.Между тем, цены на нефть марки WTI смогли восстановиться после резкого падения, возможно, вызванного перебоями в добыче из-за урагана "Рафаэль" на побережье Мексиканского залива. Однако цены на золото снизились на 0,64%, вероятно, из-за роста доходности и укрепления доллара.Поведение валютного рынка: курс доллара США по отношению к основным валютамДоллар, по-видимому, торговался осторожно в преддверии публикации индекса потребительских цен, при этом основные пары демонстрировали умеренный рост в течение азиатских и лондонских рыночных часов.Фактические результаты показали, что общая и базовая инфляция соответствовали ожиданиям рынка, что привело к некоторой фиксации прибыли, прежде чем доллар вырос по всем направлениям. Менее "голубиный" комментарий президента ФРС Миннеаполиса Кашкари, возможно, также способствовал укреплению доллара, поскольку он признал, что ожидания в отношении денежно-кредитной политики удерживают ценовое давление на прежнем уровне.Доллар США смог еще больше укрепиться, поскольку член FOMC Мусалем укрепил осторожную позицию в отношении будущих снижений ставок. Несмотря на то, что ралли, похоже, пошло на спад после выступления члена FOMC Шмида, в котором обсуждалась некоторая неопределенность в отношении путей будущего снижения ставок, оно все равно завершилось в плюсе по сравнению с остальными валютными парами.Предстоящие важные новости в экономическом календаре Форекс на 14 ноябряВыступление члена FOMC Куглера в 12:00 по ГринвичуОтчет о заседании ЕЦБ по денежно-кредитной политике в 12:30 по ГринвичуВыступление члена MPC Манна в 13:00 по ГринвичуОсновные данные по индексу потребительских цен в США в 13:30 по ГринвичуЧисло первичных заявок на пособие по безработице в США в 13:30 по ГринвичуВыступление члена FOMC Баркина в 14:00 по ГринвичуОценка запасов сырой нефти в США в 16:00 по ГринвичуВыступление президента ЕЦБ Лагард в 19:00 по ГринвичуВыступление председателя ФРС Пауэлла в 20:00 по ГринвичуВыступление главы Банка Англии Бейли в 21:00 по ГринвичуВыступление члена FOMC Уильямса в 21:15 по ГринвичуПроизводственный индекс деловой активности в Новой Зеландии в 21:30 по ГринвичуПредварительный индекс ВВП и цен Японии в 21:50 по ГринвичуВолатильность доллара может сохраниться на следующих торговых сессиях, поскольку другие представители ФРС, включая самого Джерома Пауэлла, выступят с речами и, возможно, обсудят сроки будущего смягчения. Данные по ценам производителей в США также могут повлиять на прогноз инфляции.Внимательно следите за протоколами заседания ЕЦБ, а также за выступлениями главы ЕЦБ Лагард, поскольку они также могут повлиять на направление движения евро в течение ...
EUR/TRY: euro is under pressure after weak Eurozone GDP dataOn October 23, the EUR/TRY currency pair is trading at 36.9302, which is 0.17% lower compared to the previous trading session. The depreciation of the euro against the Turkish lira is due to continued pressure on the euro due to weak macroeconomic data for the eurozone, as well as improvements in the Turkish economy.In Turkey, the Central Bank (CBRT) continues to adhere to strict monetary policy, which supports the lira exchange rate. In October, the CBRT raised its key interest rate to 35% in an attempt to contain inflation, which reached 61.5% in September in annual terms. The bank also announced its intention to maintain high rates to stabilize the economic situation, which led to some strengthening of the lira. However, the domestic market continues to be affected by concerns about political stability and international pressure on economic policy.The economic situation in the eurozone remains difficult. GDP data for the third quarter showed weak growth of 0.2%, which is below analysts' expectations. Inflation slowed to 4.3% in September, but core inflation remains at 4.5%, well above the ECB's target level. The European Central Bank (ECB) adheres to a strict policy and signals readiness for further tightening if necessary. Against this background, pressure on the euro remains, as high interest rates continue to limit economic growth in key eurozone countries.Resistance levels: 37.2000, 37.5000.Support levels: 36.7500, 36.5000.GBP/USD: pound is under pressure due to a decrease in the PMIOn October 23, the GBP/USD currency pair is trading at 1.2974, which is 0.07% lower compared to the previous trading session. The decline in the pound against the dollar is due to volatility against the background of market expectations and upcoming economic data releases in the UK and the USA.In the UK, the market's attention is focused on the upcoming publication of data on the industrial business activity index (PMI), which, according to forecasts, may decrease to 48.7 points, indicating a slowdown in activity in the manufacturing sector. This is also confirmed by GDP data, which showed growth of only 0.3% in the third quarter, which is lower than analysts' expectations. Inflation remains a key factor, and the latest publication showed its slowdown to 5.9% in annual terms, which somewhat eased the pressure on the Bank of England. However, the continued rise in energy and food prices poses risks for further rate hikes in the UK, despite the slowdown in economic growth.In the US, the situation remains stable against the background of strong data on the labor market and inflation. Recent data on the consumer price index (CPI) in September showed an increase of 3.7% year-on-year, which coincided with forecasts, and the unemployment rate remains stable at 3.8%. Against this background, the Fed continues to adhere to the strategy of maintaining the current level of interest rates, which supports the dollar exchange rate. However, market participants expect new signals from the Fed representatives in the near future, which may have an impact on the further dynamics of the GBP/USD exchange rate.Resistance levels: 1.3000, 1.3050.Support levels: 1.2950, 1.2900.AUD/USD: slowing inflation in Australia strengthens RBA's cautionOn October 23, the AUD/USD currency pair is trading at 0.6677, which is 0.15% less than in the previous trading session. The depreciation of the Australian dollar is due to the deterioration of Australia's economic indicators and expectations of the Reserve Bank of Australia (RBA) actions.The economic situation in Australia remains tense, despite the measures taken by the government and the Central Bank. Recent inflation data showed a slowdown to 5.1% year-on-year, which is lower than the previous figure of 5.6%, but still exceeds the RBA's target of 2-3%. In response to high inflation and weak economic growth data, the RBA left the interest rate at 4.35%, adhering to a cautious approach to further raising it. At the same time, the labor market is showing a weakening, and the unemployment rate rose to 3.9%, which is higher than analysts' expectations of 3.7%.Economists' forecasts and comments from RBA representatives confirm the bank's cautious position aimed at maintaining stability amid global economic turmoil and falling commodity prices. The focus is on the upcoming RBA meeting and the publication of the quarterly inflation report, which may affect further rate decisions.Resistance levels: 0.6700, 0.6730.Support levels: 0.6650, 0.6620.USDX: US Dollar Index is stable at 103.47 amid expectations of US PMI dataAs of October 23, the USDX (DXY) index is trading at 103.47, almost unchanged from the previous trading session. This indicates a general stabilization of the dollar, which is associated with expectations of important publications in the United States and the stability of economic data.The economic situation in the United States remains in the focus of investors' attention. The latest data show that inflation remains stable at 3.7% year-on-year, which coincides with analysts' forecasts. However, market participants continue to monitor the Fed's actions, as the next meeting will be decisive for further decisions on interest rates. In a stable labor market, where the unemployment rate is stable at 3.8%, the Fed retains the possibility of tightening monetary policy if necessary. Today, attention is focused on the upcoming data on business activity in the services sector (PMI), which may affect the dollar exchange rate if the actual values deviate significantly from expectations.Economists expect that the growth of the American economy will continue to remain strong, which supports the current position of the dollar in international markets. However, according to forecasts, in November and December, the USDX index may adjust to levels around 103.1 and 101.7, respectively, which indicates possible volatility depending on the publication of data and the actions of the Fed.Resistance levels: 104.00, 104.30.Support levels: 103.00, ...
EUR/CAD: euro is under pressure due to weak economic indicatorsThe EUR/CAD pair is trading around 1.5008 as of October 10, showing a slight increase of 0.13% compared to the previous session. The pair is trying to stay above the 1.5000 level, despite some uncertainty in the economic performance of both countries and global currency markets.The economic situation in the eurozone remains under pressure, as data from Germany showed a 0.8% decline in industrial production in August. In addition, the business activity index (PMI) in the eurozone services sector also fell to 47.4 points, which signals a slowdown in economic activity. The European Central Bank, in turn, continues to support a tighter monetary policy, although recent statements by ECB members have signaled the possibility of suspending rate hikes, which causes concern among investors.On the other hand, the Canadian economy is also facing challenges. Last week, employment data showed a 0.4% increase in the number of jobs, which exceeded expectations. However, wage growth remains at 3.8% year-on-year, which may strengthen inflation expectations and push the Bank of Canada to further tighten monetary policy. The Canadian dollar has not yet received significant support, which keeps the EUR/CAD pair relatively stable.Resistance levels: 1.5070, 1.5100.Support levels: 1.4950, 1.4900.USDX: dollar is developing a short-term bullish trendIn the morning, the USDX index holds at 102.93, maintaining a strong short-term "bullish" trend, which contributes to the renewal of local highs recorded on August 16.The growth of the index is supported by revised expectations regarding the pace of further interest rate cuts by the US Federal Reserve. Against the background of the expected monetary policy adjustments of other leading central banks, this creates a competitive advantage for the US dollar. The attention of market participants was focused on the recently published minutes of the September FOMC meeting. Earlier, Fed Chairman Jerome Powell stressed the importance of a cautious approach to lowering rates, which reinforced expectations of a smoother reduction. According to the CME Group FedWatch Tool, the probability of a rate cut of -25 basis points in November is estimated at about 90.0%. As for the December meeting, analysts also forecast a decrease of 25 basis points, but forecasts remain less certain. The latest data on inflation in the United States, measured through the index of personal consumer spending, shows that in August the annual inflation rate was 2.2%, while the base indicator, excluding energy and food products, reached 2.7%. Labor market data also indicate some weakening: the average wage growth in the non-agricultural sector in July and August was lower than in the second quarter, and the unemployment rate rose to 4.2%.Resistance levels: 102.75, 103.00, 103.30, 103.60.Support levels: 102.45, 102.23, 102.00, 101.67.Silver market analysisSilver (XAG/USD) is trading around 30.61 as of October 10, which is 0.43% higher compared to the previous session, reflecting a slight increase. Support is observed against the background of the weakening of the US dollar, which usually has a positive impact on dollar-denominated metals, including silver.The economic situation in the United States remains in the focus of investors' attention. In particular, inflation data (CPI) for September is expected to be published today, which may significantly affect the Fed's interest rate decisions and, accordingly, the value of silver. The consumer price index is expected to slow down, however, if the actual data turns out to be higher than forecast, this may strengthen expectations of further rate hikes and put pressure on silver. In addition, the recent decline in Chinese incentives has had an impact on industrial metals, limiting their growth, including silver, which remains in the range of $30.3–$30.6 per ounce. Tomorrow, October 11, China will present a report on the trade balance for September. Given that China is one of the largest consumers of industrial metals, such data may affect the mood in the silver market. Export growth is forecast, which could increase demand for metals and support the price of silver, especially against the background of China's recent efforts to stimulate domestic demand and strengthen the economy.Resistance levels: 30.50, 30.77, 31.15, 31.56.Support levels: 30.50, 30.00, 29.73, 29.35.Oil market analysisWTI crude oil is trading at about $74.40 per barrel as of October 10, showing stable growth against the background of supportive demand factors. The key driver of price movement remains a decrease in gasoline inventories in the United States, which caused positive expectations and led to higher prices. Gasoline inventories decreased by 6.3 million barrels during the week, indicating high demand and/or reduced supply, supporting oil price growth in the short term.Additionally, the International Energy Agency (IEA) has released an updated forecast according to which global oil demand will continue to grow and will amount to about 104.3 million barrels per day by 2025. The agency's current report highlights that demand growth is driven by a recovery in economic activity and significant consumption in non-OECD countries, which is likely to support oil prices over the coming months.Resistance levels: $75.65 and $76.30.Support levels: $73.70 and ...
USD/CHF: Swiss regulator expects further decrease in inflationThe USD/CHF pair shows a multidirectional movement, remaining near the 0.8450 level: the exchange rate is being adjusted after a two-day rise, which allowed the US dollar to move away from local lows recorded on September 18.The franc is supported by the latest macroeconomic indicators: the business activity index calculated by the Association of Supply Managers (SVME) rose in September from 49.0 to 49.9 points, exceeding the projected 48.2 points. Retail sales are also growing in Switzerland: in August, this figure increased from 2.9% to 3.2%, with expectations at 2.6%. Inflation statistics for September will be published tomorrow at 08:30 (GMT+2), and experts predict that annual inflation will remain at 1.1%. In his first speech, the new head of the Swiss National Bank, Martin Schlegel, noted that the regulator positively assesses the prospects for further reduction in inflation, which slowed to 1.1% in August and remains in the target range of 0.0-2.0% over the past 15 months. According to forecasts of 85.0% of analysts, at the December meeting, the regulator will raise the interest rate to 0.75%.Resistance levels: 0.8481, 0.8500, 0.8517, 0.8541.Support levels: 0.8450, 0.8429, 0.8400, 0.8365.USD/CAD: pair stabilizes in anticipation of market catalystsDuring Asian trading, the USD/CAD pair shows heterogeneous fluctuations, remaining around the 1.3490 mark.The Canadian labor market report at the end of the week is not expected, which narrows investors' attention to macroeconomic statistics. Earlier, traders drew attention to the growth of the index of business activity in the Canadian manufacturing sector from S&P Global, which increased from 49.5 to 50.4 points in September. At the same time, the similar American ISM index in the manufacturing sector remained at 47.2 points over the same period, which did not meet expectations of its growth to 47.5 points. As noted by Douglas Porter, chief economist at the Bank of Montreal, Canada's real GDP in the third quarter showed growth of less than 1.5%, which is lower than last year's figures and indicates a slowdown in the economy. Porter added that such a slowdown could ease inflationary pressures, which reached the 2.0% target in August. The Bank of Canada has carried out three interest rate cuts since June, and fresh macro data reinforces the likelihood of a sharper 50 basis point cut. However, employment data remains a key factor for the regulator.Resistance levels: 1.3500, 1.3524, 1.3550, 1.3582.Support levels: 1.3475, 1.3457, 1.3440, 1.3419.USDX: market reacts to the speech of the head of the Fed at the NABE meetingThe USDX index shows multidirectional fluctuations, remaining near the 101.00 level and waiting for new factors that can affect its dynamics. At the beginning of the week, the US dollar showed strong growth, which was due to a speech by Fed Chairman Jerome Powell.In his speech, Powell noted that the Fed is considering further easing of monetary policy by the end of the year, proposing a gradual reduction in interest rates by 25 basis points per meeting. He also stressed that the 3.0% GDP growth in the second quarter is a good indicator for maintaining a stable level of consumer spending. However, further actions by the regulator will depend on incoming economic data, and if pressure on the labor market increases, the Fed may reconsider its position towards more significant easing.The dollar was also supported by data on the number of JOLTS vacancies: in August, this figure rose to 8,040 million, exceeding the forecast of 7,655 million. On Friday, the final report on the labor market for September will be published, and the number of new jobs is projected to decrease to 140.0 thousand. The unemployment rate is expected to remain at 4.2% and hourly wage growth is expected to slow to 0.3% on a monthly basis. Today, investors' attention will be focused on ADP's private sector employment data for September, where an increase from 99.0 thousand to 120.0 thousand jobs is expected.Resistance levels: 101.20, 101.67, 102.00, 102.23.Support levels: 100.80, 100.35, 100.00, 99.50.Gold market analysisYesterday, gold in the XAU/USD pair rose by 1.18%, reaching the level of 2663.37. This rise was caused by the news of Iran's attack on Israel, which was a response to the elimination of the leaders of the Hezbollah and Hamas groups. Against the background of increased geopolitical tensions, gold may test the historical maximum of 2685.00. However, in case of a decrease in tension, a correction and a decrease in the value of the asset are likely. Iranian Foreign Minister Abbas Araqchi said that Tehran had completed a retaliatory operation, but threatened more serious actions in case of new provocations, to which Israel promised a tough response.Gold continues to show a confident upward trend. According to a report by the U.S. Commodity Futures Trading Commission (CFTC), last week the volume of net speculative positions in gold reached 315.4 thousand, which is higher than the previous figure of 310.1 thousand. The number of open transactions on the asset is at a four-year high. The balance of the bulls amounted to 282,912 thousand contracts, while the bears had only 28,071 thousand. Last week, buyers opened 9.616 thousand contracts, while sellers opened 7,404 thousand, which indicates high interest from investors.Resistance levels: 2685.00, 2750.00.Support levels: 2546.00, 2471.00, ...
EUR/USD: movement below the resistance line of the channel 1.1260–1.0950The EUR/USD pair maintains an uptrend, trading at 1.1115, and updates the lows of September 13 against the background of high volatility after the announcement of the decision of the US Federal Reserve on monetary policy.Despite stable macroeconomic indicators in the eurozone, the euro is showing a corrective movement, trying to return to growth. In August, the consumer price index in the region increased by only 0.1%, which led to a slowdown in annual inflation from 2.6% to 2.2%. Core inflation also fell from 2.9% to 2.8%, which supported the decision of the European Central Bank (ECB) to cut the interest rate by 60 basis points to 3.65%. Nevertheless, with inflation above 2.2%, the risks to the economy remain.The US dollar is near an annual low, trading at 100.70 on the USDX index. Yesterday, the Fed representatives reduced the cost of borrowing by 50 basis points to 4.75–5.00%, which coincided with the expectations of most analysts. The decision was supported by positive data on the real estate market: the number of construction permits issued in August increased from 1.406 million to 1.475 million, and the volume of construction of new homes increased from 1.237 million to 1.356 million, indicating a retreat from historical lows. The Fed also revised the forecast for the unemployment rate for 2024 from 4.0% to 4.4%, and for 2025 from 4.2% to 4.4%. Experts expect another interest rate cut before the end of the year, most likely in December, to give the regulator time to assess the impact of the measures already taken.Resistance levels: 1.1150, 1.1260.Support levels: 1.1090, 1.1000.GBP/USD: attempt to break through the 1.3258 levelThe GBP/USD pair is holding near the 1.3259 level after the announcement of the results of the US Federal Reserve monetary policy meeting.The Bank of England's monetary policy decision is expected to be published today at 13:00 (GMT+2). Experts assume that the interest rate will remain at 5.00%. However, if the statements of the representatives of the Bank of England turn out to be "hawkish", this may give the pound additional support. Investors' attention is also focused on the recent UK inflation data for August. The consumer price index (CPI) rose 0.3% after a decrease of -0.2% in the previous month, maintaining the annual rate at 2.2%. The core CPI index accelerated to 3.6%, which exceeded market expectations of 3.5%. The retail price index (RPI) also showed an increase — from 0.1% to 0.6% on a monthly basis, and slightly adjusted to 3.5% on an annual basis.The long-term trend for GBP/USD remains upward. After reaching a maximum in the area of 1.3258 in August, the pair went into a downward correction, which stopped at the support level of 1.3005. A new upward movement began from this point, and the August maximum was updated yesterday. If the pair can gain a foothold above the resistance of 1.3258, further growth is likely with a target at 1.3400. A breakdown of this mark will open the way to the February 2022 maximum around 1.3630. If the pair does not overcome the 1.3258 level, we can expect a downward correction with the first target at 1.3605. If the price falls below this mark, a deeper decline to the support of 1.2857 is possible.Resistance levels: 1.3258, 1.3400, 1.3630.Support levels: 1.3005, 1.2857, 1.2680.AUD/USD: RBA announced a three-year project on wholesale digital currenciesThe AUD/USD pair is showing steady growth, continuing to form a steady "bullish" momentum in the short term. Quotes are trying to overcome the level of 0.6800, which previously could not be fixed. The pair was supported by the decision of the US Federal Reserve System to reduce the interest rate by 50 basis points, which was the first such step since 2020. Additionally, the Fed revised down its inflation forecasts, reinforcing expectations of further monetary policy easing by the end of the year. However, the market reaction was restrained, as participants had already taken into account the results of the September meeting at current prices. Today at 14:30 (GMT+2), the market's attention will be focused on statistics on applications for unemployment benefits in the United States: it is expected that the number of initial applications will remain at 230 thousand, and repeat applications by 1.85 million.The Australian dollar is strengthening on the back of labor market data for August. The number of employees increased by 47.5 thousand, exceeding the forecasts of analysts who expected an increase of 25 thousand. At the same time, the indicator of full employment decreased by 3.1 thousand, and part-time employment increased by 50.6 thousand, leveling out the decrease last month. The unemployment rate remained at 4.2%, which was in line with expectations.The Reserve Bank of Australia (RBA) has launched a three-year program to develop a wholesale digital currency. After analyzing the limitations and benefits of a retail CBDC designed for mass use, the RBA decided to focus on the wholesale application of digital currency. The project aims to explore new applications, operational models and the impact of digital currency on the Australian financial system. The regulator suggests that wholesale CBDC can significantly improve the efficiency and sustainability of markets by reducing operational risks and reducing the costs associated with mediation.Resistance levels: 0.6800, 0.6825, 0.6850, 0.6900.Support levels: 0.6775, 0.6750, 0.6732, 0.6700.USDX: Dollar index shows mixed dynamicsThe USDX index is near the 100.85 mark, demonstrating high trading activity, which is associated with the recent decision of the US Federal Reserve on monetary policy.For the first time since 2020, the Fed lowered the interest rate by 50 basis points, bringing it to 5.00%. This decision was in line with market expectations, although until the last moment investors doubted whether the regulator would decide on such a significant reduction, given the current inflation risks. Previously, rates were in the range of 5.25–5.50% from July 2023 — this is the highest level since 2001. The Fed has been closely monitoring economic indicators, aiming to bring inflation closer to the target level of 2.0%. In addition, the regulator revised GDP growth forecasts: for 2024, they were reduced from 2.1% to 2.0%, while expectations for 2025 remained at 2.0%. Inflation estimates have been adjusted downward: this year the forecast decreased from 2.6% to 2.3%, and next year — from 2.3% to 2.1%. The forecasts also reflect a possible deterioration in the labor market situation — the unemployment rate in 2024 was revised from 4.0% to 4.4%, and in 2025 — from 4.2% to 4.4%. The median forecast of FOMC members suggests that by the end of 2024, the interest rate may decrease to 4.38%, and by the end of 2025 to 3.38%. However, according to Fed Chairman Jerome Powell, further decisions will be made taking into account incoming macroeconomic data.Resistance levels: 100.80, 101.20, 101.67, 102.00.Support levels: 100.35, 100.00, 99.50, ...
Давление со стороны продавцов на доллар США сохранялось в понедельник утром, так как индекс USD упал до 102 пунктов, самого низкого уровня с начала января.Инвесторы будут внимательно следить за заявлениями представителей центрального банка, и в экономическом календаре не будет никаких важных данных. Склонность рынка к риску и падение доходности казначейских облигаций США в совокупности привели к снижению курса доллара-убежища в пятницу.Доллар США потерял позиции и не может восстановить свою силу, несмотря на более значительный, чем ожидалось, рост потребительских настроений в США, о котором сообщалось во второй половине дня.Пятую неделю подряд индекс доллара США завершил неделю ниже, чем начал, упав более чем на 0,5 процента в пятницу. Доллару США было непросто сохранить свои позиции в преддверии выходных из-за повышения склонности к риску и падения доходности казначейских облигаций США.Доходность 10-летних облигаций США остается отрицательной, ниже 3 процентов, в утренние часы в Европе в понедельник, а фьючерсы на американский фондовый индекс практически не изменились в течение дня.Желтый металл впервые преодолел отметку в 2500 долларов за унцию, и иена внезапно взлетела выше, оказав давление на Nikkei.На возможность смягчения в сентябре намекали члены Федеральной резервной системы Мэри Дейли и Остан Гулсби во время их отсутствия на выходных, и ожидается, что "голубиный" прогноз будет подкреплен протоколами заключительного заседания по вопросам политики на этой неделе. Инвесторы ожидают, что когда председатель ФРС Джером Пауэлл выступит в пятницу в Джексон-Хоул, он поднимет вопрос о необходимости сокращения.По словам экономиста Barclays Кристиана Келлера, опасения по поводу инфляции в США, которые доминировали в политических дебатах с тех пор, как цены начали стремительно расти во время пандемии, теперь в значительной степени исчезли, хотя, возможно, еще слишком рано объявлять о победе, и центральные банки, несомненно, поступят мудро, избегая этого в своей официальной риторике. Фьючерсы указывают на 25%-ную вероятность повышения на 50 базисных пунктов со значительным изменением в зависимости от результатов предстоящего отчета о заработной плате.Они полностью рассчитаны на повышение на четверть базисного пункта.Значительный пересмотр в сторону понижения - от 600 000 до миллиона позиций - можно увидеть в ежегодных обновлениях списка вакансий, которые запланированы на эту среду.Однако это, вероятно, преувеличило бы слабость рынка труда. В настоящее время ожидается, что экономика США выйдет из кризиса более мягкой. Фьючерсы на индекс Nasdaq выросли на 0,3%, а фьючерсы на индекс S&P 500 - на 0,2% из-за улучшения экономической ситуации на прошлой неделе. Позднее сегодня запланировано выступление Кристофера Уоллера, представителя Федеральной резервной системы, ответственного за политику. Поскольку Уоллер является одним из наиболее агрессивных регуляторов ФРС, отказ от ставок на снижение процентной ставки может укрепить доллар ...
Trading idea for the Dollar Index (DXY) dated July 26, 2024During the Asian session on Friday, the dollar index (DXY) continues to consolidate around 104.00. The volatility of currency pairs is low, as traders expect the publication of important macroeconomic data from the United States, which may affect the prospects for monetary policy of the Federal Reserve.Yesterday's report on US GDP for the second quarter showed growth of 2.8%, which is significantly higher than the forecast of 2%. This raises concerns that rapid economic growth is capable of accelerating inflation, which in turn may force the Federal Reserve System (Fed) to postpone monetary policy easing. Also, weekly labor market data showed that the number of initial applications for unemployment benefits increased to 235 thousand, which was lower than the forecast of 237 thousand and the previous value of 245 thousand, while the total number of citizens receiving assistance decreased from 1.860 million to 1.851 million. Despite this, market participants are still confident that the Fed will cut the rate at the September meeting. According to the FedWatch Tool, the probability of such a scenario is almost 100%. William Dudley, former president of the Federal Reserve Bank of New York, believes that rates should be lowered as early as next week at the July 30-31 meeting, otherwise it may be too late in September.Today, traders' attention is focused on data on the Personal consumption Expenditure Index (PCE) in the United States, which is the Fed's preferred indicator for assessing inflation. The PCE index for June is expected to decrease from 2.6% to 2.5%. If the forecasts are confirmed, this will indicate a continuation of the downward trend in inflation, which will increase the likelihood of monetary policy easing at the next meetings. In this regard, DXY has the potential to decrease.Recommendations:Sale of DXY at the breakdown of the 103.80 levelTarget (TP): 103.00Stop Loss (SL): ...
At Friday's auction, the dollar index (DXY) rose again to the maximum levels of early May and is trading around 105.70, showing significant growth at the end of the week, whereas on Monday it was trading around the key level of 105.00.The growth of the dollar was facilitated by the macroeconomic reporting of the United States. The revised GDP figure for the first quarter came out at 1.4%, which is higher than the expected 1.3%. The number of initial applications for unemployment benefits amounted to 233 thousand, which is lower than both the forecast value of 236 thousand and the previous figure of 239 thousand. The volume of orders for durable goods increased by 0.1% in May, with a forecast decrease of 0.1%.Today, markets are waiting for the release of the key inflation indicator for the Fed — the price index of personal consumption expenditures (PCE). The base index is expected to decrease from 2.8% to 2.6% on an annual basis, and from 0.2% to 0.1% on a monthly basis. A decrease in price pressure may increase expectations of easing the Fed's monetary policy, which markets predict for September. If inflation remains high, it will support the dollar and boost U.S. government bond yields. In addition, on Friday, investors will be interested in the May data on personal income/expenses of consumers. The growth of consumer activity and income can have a positive impact on the dollar exchange rate.Fed officials are in no hurry to change current interest rates, expecting inflation to fall to the target level of 2%. Michelle Bowman, a member of the Fed's board of governors, said that if disinflation stalled, the Fed would have to re-tighten policy. With this in mind, DXY has the potential for further growth and, with the support of the PCE index, it can break above the 106.00 mark.Based on fundamental factors, indications of technical indicators and graphical patterns, we propose to place a pending order on DXY:Buy Stop 105.80Take Profit 107.00Stop 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 ...
One of the most discussed topics of the American economy is the huge size of the US national debt. Its total volume at the end of 2020 amounted to about $ 27 trillion, which means that the ratio of the total US national debt to GDP is about 128%. Nevertheless, the ultra-low refinancing rate of the Federal Reserve System (FRS) and the high credit ratings of the United States allow spending about 6% of the budget on servicing the national debt, and its nomination in dollars removes the problem of default.The concept of the US national debtThe US national debt is divided into two groups.Intragovernment debt is debt obligations owed by the U.S. Government to its own institutions.Public debt is all federal debt owned by individuals, corporations, municipalities, foreign governments, and other entities not related to the U.S. Government. It is usually associated with the national debt.What is the US national debt in simple words? It can be considered as an accumulated deficit of annual budgets. A chronic budget deficit requires the U.S. Treasury to regularly borrow the money needed to keep the Government running.So, in 2016, at the end of Barack Obama's presidency, this deficit reached almost $600 billion. In the first three years when Donald Trump was president, the debt increased to $1 trillion. In fiscal year 2020, due to the pandemic, the federal budget deficit amounted to $3.1 trillion, which is more than three times higher than recorded a year earlier. In relation to GDP, the deficit in 2020 was 14.9%, compared with 4.6% in 2019 and 3.8% in 2018.Read more: Features of successful Forex trading according to GDP dataNevertheless, so far the ever-growing national debt does not create significant problems for the US budget due to low inflation and the minimum refinancing rate of the Fed.2018Public debt payments (USD billion) - 371Total amount of expenses - 4 109% for servicing the national debt - 9,03%2019Public debt payments (USD billion) - 423Total amount of expenses - 4 447% for servicing the national debt - 9,51%2020Public debt payments (USD billion) - 387Total amount of expenses - 6 552% for servicing the national debt - 5,91%The constant growth of the US national debt is of concern in the long term. The CBO highlights the following risks:rising inflation may prompt the Fed to raise the refinancing rate, which will lead to an increase in the cost of servicing the national debt;the voluminous and growing public debt negatively affects economic growth;the growth of the national debt absorbs money that could have been spent on investments;in a sudden crisis, the state may find that it is limited in spending.Therefore, it is likely that starting from 2021-22, after the end of the pandemic, the growth rate of the national debt will begin to decline, which will be facilitated by political factors. Republicans under Democratic President Joe Biden will return to the usual role of financial conservatives, demanding to reduce the budget deficit, which will lead to a decrease in the dynamics of the Government's debt build-up.US national debt: to whom America owesAs of September 2020, the US external public debt exceeded $7 trillion, which was about 25% of its total volume. By the way, Russia is not among the twenty largest holders of the American national debt.A country - Value (billion dollars) - Share of foreign-owned U.S. debtJapan - 1 276 - 18,05%China - 1 062 - 15,01%Great Britain - 429 - 6,07%For comparison, in the summer of 2020, the Fed owned more than $10 trillion in government debt securities. Therefore, the main holders of the US national debt are the Americans themselves. This factor, as well as its dollar nature, together with the administrative, scientific, economic and military power of the United States, is a prerequisite for the highest credit rating of American government bonds, which makes them a benchmark of reliability in the global debt market.Read more: What is a Benchmark in investment and tradingRating Agency - US Credit Rating - Place of the rating in the classificationS&P - AA+ - 2Moody's - Aaa - 1Fitch - AAA - 1The highest investment rating ensures a steady demand for US government bonds of risk-free categories of investors and guarantees a minimum risk premium. So, at the end of 2020, the yield of ten-year US bonds was less than 1%.Bonds of almost all other countries are considered more risky and are quoted at a certain premium to American securities. The larger the risk premium, the more unstable the market situation and/or the situation in a particular country.So, the essence of the US national debt is the need to regularly fill the American budget deficit. So far, the huge amount of US government debt is not so critical. After all, it is not only the largest economy in the world, but also the fact that it is denominated in dollars, which means that the topic of its default can be excluded. However, it is important to understand that large debts impose large obligations on the debt issuer, and sooner or later the borrowed will have to be returned. The possibility of investing in US bonds has already been touched upon in the Open Journal. We also wrote about the key concepts in the bond ...
Not for the first decade, some economists and politicians gloatingly predict the collapse of the dollar, not realizing that this means a global economic crisis of such magnitude that the most desirable assets will be fresh water, good food and plenty of ammunition. But the shift of the dollar from the throne of the world reserve currency is quite real and not so apocalyptic in consequences.A little historyThe dollar came to the forefront as a result of the Bretton Woods Agreements of 1944, named after the place where the conference that established the post-war world economic order took place. The gold standard was abolished, and the US dollar became the basis of monetary relations and trade settlements. The implementation of the Marshall Plan to rebuild war-torn Europe consolidated the dollar's leading position, which was further reinforced by the fact that the US economy has long been the first in the world (it continues to be so even now, although China's economy is actively coming on its heels).Nominating and making payments in dollars has become a convenient form of global finance. Currently, more than 80% of world trade turnover is calculated in US dollars. Bloomberg estimated that in the interbank turnover in the SWIFT system in the tenth years of the XXI century, about 50% - in dollars, about a third - in euros and a little less than 2% - in yuan.However, back in the 60s of the last century, economist Robert Triffin revealed a contradiction that arises if the currency of only one state is used for international settlements and national currency reserves. It can be formulated as follows: "In order to provide the central banks of other countries with the necessary amount of dollars to form national currency reserves, it is necessary that there is a constant balance of payments deficit in the United States. But a balance of payments deficit undermines confidence in the dollar and reduces its value as a reserve asset, so a balance of payments surplus is required to strengthen confidence." Subsequently, this was called the Triffin's dilemma or paradox. To resolve the contradiction, Triffin proposed creating a special international currency that would not be tied to gold or any national currency, but all this remained a theory.Read more: What is the US Dollar Index DXY and how to trade it?Who sees off the dollar?Nowadays, the discussion about changing the dollar as the world's reserve currency has become mainstream, leaving marginal and conspiracy circles. And the alternative is not the euro, as follows from Doug Casey's statement, which has become very popular in the West: "The US dollar today is a receipt that I don't owe you anything, and the euro is the question — who doesn't owe you anything?". That is, the euro is not ready to replace the dollar. Nevertheless, the Federal Reserve Bank of New York has published a forecast that in the coming years the dollar will cease to function as the world's reserve currency. The basis for the forecast was the fact that the American stock market suffers collapses one after another. The well-known financier Ulf Lindahl is sure that at the end of 2019 the process of depreciation of the dollar by about 40% against the euro will begin, and in 2020 the process may even become a landslide.As a new world reserve currency, it is proposed to switch to the virtual currency of the International Monetary Fund (IMF) - special drawing rights (SDR), created in 1969. SDR is still used only for settlements within the framework of the IMF and several other international organizations. In fact, this is the launch of a solution to the Triffin paradox. So far, it is the SDR that acts as the most acceptable option, including because they are of a non-national nature. Financiers still remember the experiences of 2008-2012 due to rumors that the United States is ready to say goodbye to the dollar and introduce amero: the dependence of the global economy on a single country makes the entire system vulnerable and should be exceeded. Moody's Investors Service analysts also write about this.In this paradigm, it becomes clear why the problem will not be solved if, for example, the world reserve currency becomes the yuan of the People's Republic of China, as pro-leftist politicians and financiers broadcast and dream about. It's simple — it's again the dependence of the whole world on the national currency of one country. No cryptocurrency is suitable as a reserve currency either - because of anonymity and the absence of a single issuing center, which means irresponsibility and impunity: too shaky a foundation for the global economy. The deglobalization of the economy is a medicine that is worse than the disease itself. So it remains for now to sit quietly on the shore and wait for events to develop. Either the SDR will become the new world reserve currency, or the gentlemen from the Bilderberg Club, the Trilateral Commission and other proto-world governments will find another way out and offer some other solution to the problem, but the global financial apocalypse will not be allowed — it is not beneficial to anyone.Read more: The history of Federal Reserve (Fed) and its ...