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US Dollar | September 2022 MONTHLY Report - www.tradewithufos.com

US Dollar -

The U.S. Dollar Index ® (USDX) closed the month at 108.67 with a gain of 2.78%, for a third positive consecutive monthly close after reaching a fresh two-decade high of 109.45.

• Nonfarm Payrolls data released on 5th August reported that 528,000 new jobs were created during July, more than doubling expectations of 250,000 and a considerable increase on the prior month's revised gain of 293,000 (revised downwards from 372,000). The highest increase in new jobs seen since February this year. The USDX closed the day at 106.49, up 0.83% on the day.
• Consumer Price Index (CPI) data for all items released on 10th August slowed more than expected as inflation data 12-month ending July was at 8.5% dropping from 9.1% the prior month as energy prices fell. Core Inflation (all items less food and energy) recorded a 5.9% increase over the last 12 months, equaling the data released the prior month to remain at a six-month low. The USDX closed the day at 105.08 with a loss of 1.07% as the markets factored in the potential for less aggressive rate rises in the future from the Fed.
• FOMC minutes released on 17th August reviewed the pace in which interest rates would likely rise through looking at the effects the current monetary policy tightening is having on curbing inflation. There is also an appreciate of the wider impact rate rises will have on the economy as some Fed participants noted that some interest rate sensitive sectors had already began to feel the effects of the rate rises. The Committee is still committed to bringing inflation in line with its 2% objective in the longer term. The USDX closed marginally up for the day at 106.49 with a gain of 0.11%. 

                                                                    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 U.S. Dollar Index ® started August trading with the bears in control exerting downward pressure after the bearish closes observed during the prior three trading days. The U.S. Dollar bulls were not enough to reverse early losses after better than expected ISM Manufacturing PMI data for July was released. Data published showed manufacturing output remained in growth territory but the slowdown in output continued. The data released for July came out at 52.8, above market expectations of 52.0 although slightly below July’s release of 53.0. The U.S. Dollar Index ® closed the day just below the lower boundary of the Daily Bollinger Bands at 105.34 with a loss of 0.37%.

The U.S. Dollar Index ® continued to fall during early trading on 2nd August with the bears in control until the U.S. Dollar Index ® dropped to a low of 104.92 and reached an area of support on a daily chart. The area of support was just below the lower Daily Bollinger Bands at 105.06 – 104.45 with a lower timeframe 4-hour level nested within at 105.06 – 104.83. The bulls were waiting and the U.S. Dollar Index ® rallied from this area as money flowed into the safe haven to close the day with a gain of 0.81% at 106.10.

On 3rd August during early trading the market edged sideways as economic data was due to be released. Positive ISM Services PMI released early morning for July showed the service sector economic activity registered a reading of 56.7. This exceeded market expectations of 53.5 and above the prior month’s data of 55.3.to show consistent growth in the service sector, which according to data published had expanded for 26 consecutive months. On this news, the market began to lift and the U.S. Dollar Index ® continued to rally throughout much of the U.S. trading session. The market met resistance when the U.S. Dollar Index ® reached a high of 106.70 and the bears returned. The U.S. Dollar Index ® pulled back towards the end of the trading day to close the day at 106.38 with a gain of 0.11%.

The bearish momentum continued into the following trading day when the U.S. Dollar Index ® dropped back down below the midpoint of the Daily Bollinger Bands as concerns of a looming recession across Europe grew. Also on the 4th August, Loretta Mester from the Cleveland Federal Reserve Bank reiterated at an event that she would like to see inflation coming back down towards the Fed’s target range before policymakers could consider the easing of the Fed’s monetary policy tightening.

Nonfarm Payroll data for July released on 5th August with 528,000 new jobs created during July, more than doubling market expectations of 250,000 jobs and significantly above the downward revised figure of 293,000 published for June. The unemployment figures published better than expected results with the unemployment rate at 3.5%, against expectations of 3.6% and back to pre-pandemic levels. Wage growth also increased as average hourly earnings went up 0.5% for July and a gain of 5.2% compared to a year ago and higher than estimates. The data published pointed towards a strong labour market even though there are mixed messages about the future economy. The U.S. Dollar Index ® rallied on this news throughout the day and after testing the midpoint of the Daily Bollinger Bands (20 SMA) it met resistance and pulled back slightly towards the end of the trading session. The market closed the day with a gain of 0.83% at 106.49.

The U.S. Dollar Index ® closed the first full week of August trading with a gain of 0.72% at 106.49 to recover the losses made during the final week of July trading. 8th August the U.S. Dollar bulls returned during early trading and after the market retraced towards the prior trading day high and the Daily 20 SMA weakness came in and the U.S. Dollar Index ® dropped.to close the day down with a loss of 0.16% at 106.32.

9th August after the bears dominated early trading the U.S. Dollar Index ® reversed during the U.S. session as the bulls returned and the market rallied to recover earlier losses. The U.S. Dollar Index ® closed the day with a modest gain of 0.01% at 106.25.

10th August trading the U.S. Dollar bulls struggled to maintain control and as the U.S. Dollar Index ® reached a high of 106.29, the bears returned and the market dropped which was exacerbated by cooler than expected inflation data.

The latest inflation figures released during the day showed the pace of inflation slowed as Consumer Price Index (CPI) data for all items 12-month ending July announced prices rose by 8.5% falling from 9.1% the prior month, which was the largest annual increase since November 1981. The Core inflation rate, which represents all items less food and energy, showed it had levelled off at 5.9% over the last 12- month period, equaling the data released in June and below expectations of 6.1% to remain at a six-month low. One of the contributing factors to the drop has been the decline in the wholesale energy prices such as Crude Oil.

After a reaching a low of the day at 104.51 the U.S. Dollar Index ® found buyers within the daily area of support at 105.06 – 104.45 and the market began to rise towards the close. The U.S. Dollar Index ® closed the day down at 105.08 with a loss of 1.07% on fears of a less aggressive rate hike cycle by the Fed compared to that previously anticipated.

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

11th August trading during the European session the buyers were out in force and the U.S. Dollar Index ® continued to rise although still was trading within the area of support. This early bullish move was short lived as the U.S. session began and the U.S. Dollar bears returned. As the session drew to a close the bulls fought back although there was little time left to make an impression and the U.S. Dollar Index ® closed the day at 104.99 with a loss of 0.11%.

12th August the bulls returned and the U.S. Dollar Index ® began to rise from the support area. Michigan Consumer Sentiment Index information came out during the day with some welcomed news as data published above expected figures at 55.1 against expectations of 52.2 and July data at 51.5. The U.S. Dollar Index ® closed the day at 105.51 with a gain of 0.47%.

Even after a positive day to end the week, the U.S. Dollar Index ® closed the week with an overall loss of 0.92% at 105.51.

Friday’s bullish move extended further on 15th August as the U.S. Dollar Index ® continued to rally throughout the trading day as the market blasted through the Daily 20 SMA which is had struggled to close above during early August trading. The U.S. Dollar Index ® closed the day with a gain of 0.87% at 106.43.

On 16th August after a positive start to early trading the U.S. Dollar Index ® reached a high of 106.84 where sellers returned. The U.S. Dollar Index ® struggled to break the highs of the month so far (106.81) and that of the 28th July (106.85) which combined had created a resistance level. The U.S. Dollar Index ® pulled back for the remainder of the day to close at 106.39 with a modest gain of 0.02%.

17th August early trading was bearish after Retail Sales data published showed sales were flat with a 0% change in sales month on month. This came in below market expectations of 0.1% and the previous increase in sales, revised downwards from 1.0% to 0.8%. The U.S. Dollar Index ® dropped initially on this news as concerns

The FOMC minutes were released on 17th August based on the Committee meeting that took place on 26th - 27th July. The Fed shared that officials agree that there would eventually be the need to have to pull back the pace of interest rate hikes but wanted to gauge the effects that the hikes were having toward curbing inflation. The Fed’s benchmark rate rose in July by 75 basis points for a second consecutive meeting, which marked the fastest pace of tightening since the early 1980’s. The long-term goal remains to have inflation back within the 2% target. The U.S. Dollar Index ® closed at 106.49 with a 0.11% gain.

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 trading on 18th August. The U.S. Dollar Index ® closed at 107.42 with a 0.79% gain as the market pierced the upper boundary of the Daily Bollinger Bands.

The bullish momentum continued into the final trading day of the week as the U.S. Dollar bulls continued to extend the previous day’s gains. The U.S. Dollar Index ® closed 19th August with a gain of 0.64% at 108.10.

The U.S. Dollar Index ® closed the week with an overall gain of 2.45% at 108.10, reversing the prior week losses and the strongest weekly performance in August.

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 22nd August with a strong performance up at 108.98, with a gain of 0.86% to mark a third consecutive bullish close and a gain of 2.26% during this three-day period.

Trading on the 23rd August saw the bulls drive prices marginally higher during early trading to reach a high of 109.21, breaking July’s high and in doing so creating a fresh two-decade high. Sellers returned and the market dropped. The U.S. Dollar Index ® closed the day down at 108.55 back on the cusp of the upper boundary of the Daily Bollinger Bands with a loss of 0.33%.

Trading on the 24th August, the bulls drove the market higher although struggled to maintain control through the day. Data released for Durable Goods Orders for July showed a decline in orders dropping from 2.2% (revised upwards from 1.9%) to 0% against expected increase of 0.6%.

Nondefense Capital Goods Orders ex. Aircraft also released on 24th August showed a slow down as data published an increase of 0.4% against 0.3% (expected) although below the revised 0.9% data released for June (revised from 0.5%). Neither sets of data had too much of an impact of the U.S. Dollar Index ® direction at the time of release.

The U.S. Dollar Index ® reached a pocket of resistance on a 2-hour chart 108.77 - 109.21 created the prior trading day (23rd) and dropped. The U.S. Dollar Index ® closed the day 108.62 with a gain of 0.12%.

25th August saw a bullish start to early trading. GDP data released at -0.6% which was better than market expectations. The annualized preliminary quarter two GDP figures showed a decline of 0.6% against expectations of a decline of 0.8% and the prior months figures with a decline of 0.9% whilst this technically shows the economy is shrinking it is anticipated to be slightly better than expected. The U.S. Dollar Index ® closed the day lower at 108.43 with a loss of 0.16%.

Trading on 26th August started with the bears driving the market lower during the early trading session until the U.S. Dollar Index ® reached a pocket of support on a 2-hour chart 107.65 – 107.48 where buyers were waiting and the market rallied throughout the remainder of the trading session. The U.S. Dollar Index ® closed the day at 108.75 with a gain of 0.30%.

The U.S. Dollar Index ® closed the week up at 108.75 with a gain of 0.64%

On 29th August, the bullish momentum continued during early trading as the bulls drove the U.S. Dollar Index ® to reach a high of 109.45, a fresh two-decade high. Here the U.S. Dollar Index ® met resistance and dropped throughout the remainder of the day taking out earlier gains. The U.S. Dollar Index ® closed the day at 108.79 with a loss of 0.01%.

On 30th August after a bearish start to early trading, the U.S. Dollar Index ® recovered some ground as the bulls returned although the market struggled to reach the prior days high. The U.S. Dollar Index ® closed trading at 108.75 with a gain of 0.10%.

On 31st August trading, early bullish gains made were lost to the bears.as the trading day continued.

ADP Employment Change data for August released on 31st August shared disappointing numbers with 132,000 new jobs created against July figures of 270,000 as jobs growth slowed for the second consecutive month. This was significantly below market expectations where private employment was anticipated to expand by 288,000. This data suggests a more cautious approach to hiring possible due to the mixed messages in the current economic climate.

The U.S. Dollar Index ® closed the final day of trading at 108.67 with a loss of 0.06%.

The U.S. Dollar Index ® closed the month with a gain of 2.78% at 108.67 for a third consecutive higher monthly close. The whole month continued to trade within the wider range of monthly resistance as the U.S. Dollar Index ® trades near highs not seen for two decades. The uptrend on the weekly chart continues as the U.S. Dollar Index ® remains trading above a 20 SMA. On a daily chart the uptrend is intact as the U.S. Dollar Index ® continued to rally and is now trading back above the Daily 20 SMA.

UPCOMING HIGH IMPACT EVENTS

• Thr 1 Sep ISM Manufacturing PMI (Aug)
• Fri 2 Sep Nonfarm Payrolls (Aug)
• Tue 6 Sep ISM Services PMI (Aug)
• Wed 7 Sep Fed’s Chair Powell Speech
• Tue 13 Sep Consumer Price Index (Aug)
• Thr 15 Sep Retail Sales (Aug)
• Fri 16 Sep Michigan Consumer Sentiment (Sep) PREL
• Wed 21 Sep Fed Interest Decision
• Wed 21 Sep Fed’s Monetary Policy Statement
• Wed 21 Sep FOMC Economic Projections
• Wed 21 Sep FOMC Press Conference
• Tue 27 Sep Durable Goods Order (Aug)
• Tue 27 Sep Nondefense Capital Goods Orders ex. Aircraft (Aug)
• Wed 28 Sep Gross Domestic Product Annualized (Q2)

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