The US dollar was marginally lower in European morning trading today as investors await the release of pivotal FOMC minutes later in the day, anticipating details of the timing of the Federal Reserve’s first interest rate hike as well as clues on debates over balance sheet reduction amid growing inflation concerns.
The DXY index, which tracks the performance of the USD against a basket of six major currencies, was last seen at 96.06 by 11:20 GMT, down 0.2% today. The greenback dipped against low-yielding currencies such as the euro (EUR) and the Japanese yen (JPY), while it remained unchanged against the pound (GBP).
- EUR/USD rose to 1.1314 (+0.26%)
- USD/JPY dropped to 115.73 (-0.35%)
- USD/CHF slipped to 0.9151 (-0.11%)
- GBP/USD was flat at 1.3538 (+0.04%)
The risk-sensitive Australian dollar (AUD) advanced, while the New Zealand dollar (NZD) remained broadly unchanged. The Norwegian krone (NOK) strengthened as oil prices held firm after OPEC+ decided to increase output by 400,000 barrels per day in February, as generally anticipated, and signalled a relatively short-lived effect on oil demand from the Omicron variant.
The Russian ruble (RUB) remained under pressure, weakening 0.6% today against the dollar, after US president Joe Biden’s assurance to Ukrainian president Volodymyr Zelenskyy last Sunday that the US and NATO nations would respond forcefully in the case of a Russian invasion.
- AUD/USD rose to 0.7252 (+0.19%)
- NZD/USD was flat at 0.6813 (+0.01%)
- USD/CAD edged slightly up to 1.2719 (+0.1%)
- USD/NOK weakened to 8.8311 (-0.32%)
- USD/RUB climbed to 75.65 (+0.53%)
Forex Daily Matrix – 5 January 2021
At the time of writing, the US Dollar Index (DXY) stood at 96.06, down 0.2% on the day.
US Treasury yields rose further yesterday, as investors worried about persistent inflation and impending policy tightening. The 10-year yield increased to 1.65%, its highest level since early November, widening the yield differential with other major sovereigns.
On the data front, the ISM manufacturing index dipped to 58.7 in December, missing forecasts of 60.0, although prices paid and deliveries both decreased significantly, suggesting continued improvement in bottleneck issues.
Among today’s economic releases, the ADP employment change for December is predicted to increase by 420,000 employees, down from 534,100 in November, while the final reading of the services PMI for December is likely to remain unchanged from the previous month’s figure of 57.0.
Investors will be keenly monitoring today’s publication of the minutes from the Federal Reserve’s December meeting, which are scheduled to be released at 20:00 GMT and may provide insight into the board members’ views on monetary policy tightening.
US money markets are currently pricing in a 60% likelihood (up from 26% a month ago) of an interest rate hike by the Federal Reserve as early as March 2022, according to the CME FedWatch tool.
US dollar (DXY) technical levels
- 52-week high: 96.82
- 52-week low: 89.22
- 50-day moving average (one-day chart): 95.61
- 200-day moving average (one-day chart): 92.99
- 14-day Relative Strength Index (RSI) (one-day chart): 51
Chart of the day: EUR/USD closely tracked Germany-US two-year yield differential
EUR/USD was flat at 1.1314 by 11:20 GMT.
Widening yield differentials between US Treasuries bonds and German Bunds remain one the major drivers of the recent EUR/USD price action. The spread between the two-year US Note and the German Schatz hit 138 basis points at the start of the New Year, just three basis points below its November 2021 high.
On the data front, the IHS Markit Eurozone Composite PMI was at 53.3 in December 2021, broadly stable from the preliminary estimate of 53.4 and down from the previous month’s final figure of 55.4, posting the slowest pace of private sector expansion since March.
Italy’s annual inflation rate increased to 3.9% in December 2021 from 3.7% the previous month, the highest level since August 2008, but in line with market expectations.
EUR/USD technical levels
- 52-week high: 1.2349
- 52-week low: 1.1184
- 50-day moving average (daily chart): 1.1368
- 200-day moving average (daily chart): 1.1749
- 14-day Relative Strength Index (RSI) (daily chart): 49
On the data front, the manufacturing CIPS PMI was revised up 0.3 points to 57.9 in December, with delivery times improving but prices paid remaining high.
Meanwhile, markets are pricing in a 80% chance of another Bank of England rate hike in February, according to the CME Group Bank Of England Watch tool.
GBP/USD technical levels
- 52-week high: 1.4248
- 52-week low: 1.3165
- 50-day moving average (one-day chart): 1.3408
- 200-day moving average (one-day chart): 1.3742
- 14-day Relative Strength Index (RSI) (daily chart): 63
Forex Performance Heatmap – 5 January 2022
Other currency pairs (percentage change from previous close)
- USD/MXN -0.36%
- USD/ZAR -0.77%
- USD/TRY +0.63%
- USD/KRW -0.02%
- USD/CNH -0.00%
- EUR/NOK -0.06%
- EUR/SEK -0.20%
- EUR/PLN +0.23%
- EUR/HUF -0.19%
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