US Dollar | October 2022 MONTHLY Report by TRADDICTIV

Source: ICE Connect, ~30 Days

US Dollar -

The U.S. Dollar Index ® (USDX) soared to a fresh two-decade high in September at 114.75 and a fourth consecutive higher close. The USDX closed the month at 112.08 with a gain of 2.99%.

• Nonfarm Payrolls data released on 2nd September reported that 315,000 new jobs were created during August, beating expectations of 300,000 although a decline on August data which posted a revised gain of 526,000 (revised downwards from 528,000). The USDX closed the day at 109.51, down 0.08% on the day.
• Consumer Price Index (CPI) data for all items released on 13th September slowed for a second straight month, inflation data 12-month ending August was at 8.3% dropping from 8.5% the prior month as energy prices continued to decline. Core Inflation (all items less food and energy) increased over the last 12 months at a rate of 6.3%, up from June and July’s 5.9% gain to move off the six-month low. The USDX closed the day at 109.81 with a gain of 1.48%.
• The Federal Reserve raised rates by 75 basis points at the meeting held on 21st September and signaled more rates hikes of similar proportions likely in future meetings. The USDX closed the day at 110.35 with a gain of 0.41%.

DAILY TREND: UP

INDEX WEIGHTING:

EUR 57.6% | JPY 13.6% | GBP 11.9% | CAD 9.1% | SEK 4.2% | CHF 3.6%

Source: ICE Connect

The bulls were firmly in control at the start of September trading on the U.S. Dollar Index ®. The bullish move extended as positive ISM Manufacturing PMI data for August was released. Data published showed manufacturing output remained consistent to that announced for July at 52.8. The data released was above market expectations of 52.0 and stemmed the steady decline previously observed although still pointed towards low levels of manufacturing growth. The U.S. Dollar Index ® closed the day at 109.68 with a gain of 0.78%.

The U.S. Dollar Index ® lost momentum to the upside during the Asian and European session trading on 2nd September as the bears took control, and the market dropped. Nonfarm Payroll data offered little comfort and after a small injection of positivity the U.S. Dollar Index ® steadily declined. The data published showed that 315,000 new jobs were created during August, which just beat market expectations of 300,000. Although it was a substantial decline on July data that posted a revised gain of 526,000 (revised downwards from 528,000) to record the lowest monthly gain since April 2021. Data published also revealed that the unemployment rate had unexpectedly risen to 3.7% although this was largely due to an increase in workforce participation rates. Wages continued to rise, albeit slightly below expectations with average hourly earnings increasing by 0.3% in August and 5.2% from a year ago.

The U.S. Dollar Index ® traded lower throughout the majority of the U.S. session until it reached a small area of support at 108.97 – 108.73 where the market took a bounce upwards and recaptured some of the earlier losses. The U.S. Dollar Index ® closed the day down with a loss of 0.08% at 109.51.

The U.S. Dollar Index ® closed the trading week ending 2nd September with a gain of 0.65%.

On 5th September, the bulls came out and asserted control as the U.S. Dollar Index ® rallied to reach a high of 110.26 where the market struggled. The sellers returned and the bears drove the market lower to close the day down at 109.51 equal to Friday's close with a loss of 0.29% for the day.

On 6th September during early trading the market traded sideways as economic data was due to be released. The bulls returned as positive ISM Services PMI was announced for August. The data showed the service sector economic activity continued to expand for the twenty-seventh consecutive month as August recorded 56.9 against market expectations of 55.1 and above the prior month’s data of 56.7.

On this news, the market rallied and the U.S. Dollar Index ® remained buoyant throughout much of the U.S. trading session. The market met some resistance when the U.S. Dollar Index ® reached a high of 110.55 and pulled back slightly. The U.S. Dollar Index ® closed the day at 110.20 with a gain of 0.55%.

On 7th September, the U.S. Dollar Index ® throughout the Asian, European and early U.S sessions traded sideways. There were various members of the Federal Reserve speaking throughout the course of the day and the Fed’s Beige Book was due, all of which weighed heavily on the market. In one of the speeches the Federal Reserve Vice Chair Lael Brainard eluded that the Fed will need to raise rates further and for as long as necessary in order to restore price stability even though signs have emerged to show inflation is slowing. The Fed will be looking for several months of low monthly inflation data to be confident it will move toward the 2% target.

The Fed Beige Book later reported that the Federal Reserve is expecting the U.S. economy to weaken within the next 6 – 12 months as the U.S. economy was balanced between “slight to modest” growth. This dampened the spirits of the U.S. Dollar bulls and the U.S. Dollar Index ® began to drop to close at 109.83 with a loss of 0.44%.

The U.S. Dollar Index ® had a mixed day of trading on 8th September with the bulls and the bears both taking their fair share of control throughout the day. Fed Chair Powell spoke to reiterate the Fed's stance with the current measures they are taking to tackle and bring inflation into line. This was reflected in the movements of the market on the day. The U.S. Dollar Index ® closed the day 109.71 with a modest gain of 0.02%.

On the final day of trading for the week, the U.S. Dollar Index ® bears took charge and drove the market lower until the U.S. Dollar Index ® reached the midpoint of the Daily Bollinger Bands where buyers were waiting. The bulls propelled the market higher after the U.S. Dollar Index ® reached a low of 108.35 and whilst there was insufficient momentum to recover all of the earlier losses the bulls recovered some ground. The U.S. Dollar Index ® closed the day at 109.00 with a loss of 0.50%.

The U.S. Dollar Index ® closed the first full week of September trading with a loss of 0.75% at 109.00.

12th September trading the U.S. Dollar bulls struggled to maintain control and as the U.S. Dollar Index ® reached a high of 108.87, the bears returned and the market dropped. The U.S. Dollar Index ® closed the day at 108.32 with a loss of 0.28%.

The latest inflation figures released during 13th September showed the pace of inflation softened for a second consecutive month as Consumer Price Index (CPI) data for all items 12-month ending August announced prices rose by 8.3% falling from 8.5% the prior month. Lower rises in gasoline and fuel oil prices contributed towards the drop although the cost of natural gas and electricity rose (highest since August 1981) along with the cost for food (up 11.4%, the highest increase since 1979). The Core inflation rate, which represents all items excluding food and energy, showed an unexpected increase to 6.3% over the last 12-month period, compared to data released for July at 5.9% and expectations of 6.1%. This represented the highest monthly increase since March 2020.

On 13th September after reaching a low of the day at 107.67 the U.S. Dollar Index ® found buyers when the market approached a 4-hour area of support at 107.65 – 107.48. The market rallied as the bulls took control and blasted through the midpoint of the Daily Bollinger Bands. The U.S. Dollar Index ® closed the day up at 109.81 with a gain of 1.48%.

As inflation remains one of the key priorities, to help gauge future inflation expectations ICE Benchmark Administration has launched the ICE U.S. Dollar Information Expectation Index Family. A useful tool to help answer some of the key questions that will affect how the monetary policy will unfold within the coming quarters

On 14th September trading the buyers struggled, the bears stepped in and the U.S. Dollar Index ® dropped although it recovered slightly towards the end of the trading day. The U.S. Dollar Index ® closed the day at 109.63 with a loss of 0.19%.

On 15th September, the U.S. Dollar Index ® struggled to find any momentum in either direction. Retail Sales data surprised the market as sales grew by 0.3% in August compared to the decline in July, which was revised downwards from flat (0%) to -0.4%. Market expectations for August were 0%. The U.S. Dollar Index ® closed the day at 109.71 with a gain of 0.11%.

Michigan Consumer Sentiment Index information published on 16th September brought initial disappointment as data published below expected figures at 58.6 (revised lower against preliminary figures of 59.5 initially announced) against expectations of 60.0 and August data at 51.5. The U.S. Dollar Index ® closed the day at 109.74 with a loss of 0.04%.

The U.S. Dollar Index ® closed the week with an overall gain of 1.03% at 109.74.

Monday 19th September the U.S. Dollar Index ® pulled back as the bears drove the market lower to retest the Daily 20 SMA (midpoint of the Daily Bollinger Bands) where the bulls waited and the U.S. Dollar Index ® took a bounce. The U.S. Dollar Index ® closed the day with a modest gain of 0.05% at 109.47.

On 20th September, the U.S. Dollar Index ® traded sideways during early trading although found support from the daily moving averages, this time the Daily 20 EMA provided support as the bulls returned and the market rallied. The U.S. Dollar Index ® closed the day at 109.42 with a gain of 0.60%.

On 21st September the Federal Reserve announced a 75 basis points (bps) rate rise, it was an unprecedented rate hike as it was the third consecutive 75 bps hike raising its benchmark rate to a range of 3.00% to 3.25%. The tough monetary policy stance continued as a means to tackle persistently high inflation whilst concerns have been acknowledge about the impact this will likely have on the wider economy.

On this news the U.S. Dollar Index ® rallied to a high of 111.36 and sliced through the upper boundary of the Daily Bollinger Bands before pulling back to close the day positive with a gain of 0.41% at 110.35.

As inflation is set to play a key role in interest rate decisions throughout 2022, the ICE U.S. Dollar Information Expectation Index Family is a great tool to help plan for the future. The chart below provides the historical Index setting over the past year:

                                Historical chart of the ICE U.S. Dollar InflationExpectation Indexes

Further information can be found on the ICE U.S. Dollar Inflation Expectations Index Family: https://www.ice.com/iba/usd-inflation-indexes

The U.S. Dollar bulls drove the market higher during the Asian and early European trading sessions on 22nd September and again the U.S. Dollar Index ® rallied through the upper boundary of the Daily Bollinger Bands. Whilst sellers returned to reverse some of the earlier gains, the market closed above. The U.S. Dollar Index ® closed at 111.11 with a loss of 0.10%.

The bulls regained control during trading on 23rd September and the bullish momentum gathered pace as money moved into the safe haven. The U.S. Dollar Index ® rallied throughout the final trading day of the week to close with a gain of 1.76% at 112.96, to mark the strongest one-day performance of the month.

The U.S. Dollar Index ® closed the week with an overall gain of 3.24% at 112.96, reversed the prior week losses and produced the strongest weekly performance in September.

The bullish momentum continued into the following trading week as the U.S. Dollar bulls drove the market higher. The U.S. Dollar Index ® closed 26th September with a strong move up and whilst the market pulled back from the high at 114.45, the U.S. Dollar Index ® closed with a gain of 0.91% for the day at 114.02.

On the 27th September, the bears controlled early trading and the U.S. Dollar Index ® traded lower. The bulls returned during the U.S. session and reversed some of the earlier losses. Data released for Durable Goods Orders for August showed a decline in orders dropping to -0.2% from -0.1% for July (revised downwards from initial reports of 0%) this was against expected increase of 0.6%.

Nondefense Capital Goods Orders ex. Aircraft also released on 27th September showed an uptick as data published an increase of 1.3% markedly above expectations of 0.2% and above the revised 0.3% data released for July (revised from 0.4%). Neither set of data announcements had an impact on the U.S. Dollar Index ® direction at the time of release. The U.S. Dollar Index ® closed the day up at 114.05 with a gain of 0.18%.

The U.S. Dollar Index ® continued to trade higher during early trading on 28th September to reach a high of 114.75, a fresh two-decade high before pulling back as sellers stepped in to send the U.S. Dollar Index ® lower as risk-on market sentiment weakened the demand for the U.S. Dollar. The bears gathered momentum throughout the rest of the trading day and the U.S. Dollar Index ® closed the day with a loss of 1.40% at 112.51. The largest one-day loss in September.

On 29th September, the bulls briefly regained control and the U.S. Dollar Index ® reached a high of 113.72, here it met resistance as the bears returned to send the market lower. The U.S. Dollar Index ® closed the day 112.20 with a loss of 0.67%.

GDP data released on 29th September showed the U.S. economy contracted by an annualized 0.6% for quarter two as expected after the release of earlier provisional data. Whilst this technically shows the economy is shrinking it is an improvement on the drop seen for quarter one which was a contraction of 1.6%.

The bearish momentum continued on 30th September although the bulls came back during the early U.S. session and drove the market off from the lows there was insufficient momentum to stay at the high of the day and the market pulled back. The U.S. Dollar Index ® closed the day at 112.08 with a gain of 0.25%.

In the final week of September trading the U.S. Dollar Index ® created a fresh two-decade high at 114.75, although could not sustain the bullish momentum and closed the week with a loss of 0.80%.

The U.S. Dollar Index ® closed the month with a gain of 2.99% at 112.08 for a fourth consecutive higher monthly close. The uptrend remained intact on both the weekly and the daily timeframes.

UPCOMING HIGH IMPACT EVENTS

• Mon 3 Oct ISM Manufacturing PMI (Sep)
• Wed 5 Oct ADP Employment Change (Sep)
• Wed 5 Oct ISM Services PMI (Sep)
• Fri 7 Oct Nonfarm Payrolls (Sep)
• Wed 12 Oct FOMC Minutes
• Thr 13 Oct Consumer Price Index (Sep)
• Fri 14 Oct Retail Sales (Sep)
• Fri 14 Oct Michigan Consumer Sentiment (Oct) PREL
• Wed 26 Oct Durable Goods Order (Sep)
• Wed 26 Oct Nondefense Capital Goods Orders ex. Aircraft (Sep)
• Wed 26 Oct Gross Domestic Product Annualized (Q3) PREL

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