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ICE
December 2022

USDX® Report

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Macro Commentary


The U.S. Dollar Index ® (USDX) lost 2.18% of its value in December to close the month and end 2022 at 103.27, down for the third consecutive month. Even with the weakness shown during the past three months the U.S. Dollar Index ® closed 2022 with a 8.02% gain, the strongest performance since 2015.

  • Nonfarm Payrolls unexpectedly rose with 263.000 new jobs created during November, although this fell shy of October’s upwardly revised figures of 284,000 jobs. The USDX closed the day at 104.50 with a loss of 0.28%.
  • Core Inflation (all items less food and energy) eased to record an increase of 6.0% for the 12-month ending November, down from 6.3% in October. The USDX closed the day at 103.94 with a loss of 0.95%.
  • The Fed raised interest rates by 50 basis points at December’s meeting as the benchmark rate range reached 4.25% - 4.5%, the highest level in 15 years. The USDX closed the day at 103.74 with a loss of 0.24%.

U.S. Dollar Index® Focus

U.S. Dollar Index® Focus chart

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

The bearish momentum from the last trading session in November continued into early December trading, as the demand for the U.S. Dollar continued to fall. The move to the downside was exacerbated by poor ISM Manufacturing PMI data released for November. The announcement showed manufacturing output continued to decline, recording a reading of 49.0 points, falling short of expectations of 49.8 and below the previous month's release at 50.2. This was the first contraction in manufacturing activity since May 2020. The U.S. Dollar Index ® closed the first day of December with a loss of 0.83% at 104.69.

Trading on the 2nd December was a rollercoaster as Nonfarm Payroll data was released. The announcement came with 263,000 new jobs created during November. which exceeded market expectations of 200,000. This however was a drop on the revised numbers issued which reported a gain of 284,000 (revised from 261,00) and the lowest reported for 2022 (after revisions). The unemployment rate remained steady at 3.7% and wages continued to rise with average hourly earnings increasing by 0.6% in November.

The U.S. Dollar Index ® rallied to make a high of the day at 105.58 before selling pressure returned and the market reversed as the bears gained control. The U.S. Dollar Index ® reached an area of support at 104.00 - 103.42 where buyers stepped in and the market closed the day with a loss of 0.28% at 104.50.

The U.S. Dollar Index ® closed the trading week ending 2nd December with a loss of 1.53% at 104.50.

The demand for the U.S. Dollar returned on 5th December after the market took a positive bounce from the daily support area. The bullish move was also aided by the ISM Service PMI data released for November. The data brought welcomed news as it recorded 56.5 against expectations of 53.1 and a gain on the prior month announcement of 54.4 (the lowest value recorded in over two years). The U.S. Dollar Index ® closed the day at 105.24 with a gain of 0.77%.

The bullish momentum continued into trading on 6th December where the U.S. Dollar Index ® had another positive close with a 0.43% gain at 105.54. The momentum to the upside however was reversed after the market reached a high of 105.80 on 7th December which fell within the boundaries of a 4-hour resistance area refined to 105.39 - 105.86 when the bears returned and drove the market lower. The U.S. Dollar Index ® closed trading down at 105.06 with a loss of 0.48% eliminating the prior day's gain.

With the bears back in control, the U.S. Dollar Index ® traded lower during trading on 8th December and the market closed down with a loss of 0.45% at 104.76.

The market had no clear direction on the last trading day of the week even though the Michigan Consumer Sentiment Index published above expected figures at 59.1 against expectations at 53.3 and data released in October at 56.8. The U.S. Dollar Index ® reached a high of 105.20 and a low of 104.41 on the day but ultimately the U.S. Dollar Index ® settled with a close at 104.80 and a modest gain of 0.03%.

The U.S. Dollar Index ® closed the week of 9th December at 104.80 with a gain of 0.35%.

The bulls returned on Monday 12th December and the U.S. Dollar Index ® traded higher although failed to close above the prior day’s high and closed at 105.10 with a gain of 0.24%.

The latest inflation figures released on 13th December showed the pace of inflation slowed for a fifth consecutive month as Consumer Price Index (CPI) data for all items 12-month ending November announced prices rose by 7.1% falling from 7.7% in October. This represented the lowest 12-month increase since December 2021.

The Core inflation rate, which represents all items excluding food and energy, softened to 6.0% over the 12-month ending November period which was slightly below expectations of 6.1% and the prior 12-month ending October at 6.3%.

The U.S. Dollar Index ® made a high for the day at 105.09, when selling pressure returned and the bears took control to send the market back into the daily area of support which was tested earlier in the month. The area held and after reaching a low of 103.53, the U.S. Dollar bulls returned and the U.S. Dollar Index ® closed the day at 103.94, just below the lower boundary of the Daily Bollinger Bands with a loss of 0.95%.

As inflation is set to play a key role in interest rate decisions throughout 2023, 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 Inflation Expectation Indexes

U.S. Historical chart of the ICE U.S. Dollar Inflation Expectation Indexes

On 14th December the Federal Reserve announced a 50 basis points (bps) rate hike, to raise the benchmark rate to a range of 4.25% to 4.5%. The tough monetary policy stance continued to tackle high inflation even though there has been some easing in recent months. The Fed opted for a less aggressive rise, breaking the run of 75 bps rises announced at recent meetings (the past four). The expectation is that rates will remain high with further increases at a softer pace throughout 2023 although not all members agree on the future median rate. It is also likely that no reductions will be planned until 2024. The U.S. Dollar Index ® struggled on this news and the demand for the U.S. Dollar dropped as money out of the safe haven into other assets, although the bulls managed to bring the market back off the lows of 103.40. The U.S. Dollar Index ® closed at 103.74 with a loss of 0.24% still within the daily area of support 104.00 - 103.42.

The U.S. Dollar Index ® rallied out of the support area on 15th December as the bulls regained control, even negative Retail Sales data did not deter the bulls when they returned. Data published showed a drop in retail sales by the most seen in almost a year as November data announced a decrease in sales of 0.6%, significantly below the general consensus of a decline of 0.1% and considerably down on the 1.3% increase published for the month ending October. Nonetheless the U.S. Dollar Index ® climbed to reach a small pocket of resistance on the 4-hour timeframe at 104.83 - 105.09 where the market dropped slightly to close the day up at 104.53 with a gain of 0.89%.

The bullish momentum continued into the following trading day on 16th December and the market again tested the resistance area. Ultimately, the U.S. Dollar Index ® closed the day up with a gain of 0.19% at 104.66.

Overall, even with the last two positive trading days the U.S. Dollar Index ® closed the week of 16th December with a loss of 0.18% at 104.66.

On Monday 19th December after an initial drop during the Asian session the demand for the U.S. Dollar returned after it reached a low of 103.77. This demand was found within the daily support area and the U.S. Dollar Index ® rallied. The U.S. Dollar Index ® closed the day at 104.34 with a modest loss of 0.06%.

The bears returned on 20th December and the U.S. Dollar Index ® dropped throughout the majority of the day to close down at 103.61 with a loss of 0.73, again the daily area of support at 104.00 - 103.42 held.

The bulls continued to hold their ground and the U.S. Dollar Index ® edged higher during the following trading day to close positive with a gain of 0.21% at 103.85.

On 22nd December GDP data was announced which brought welcomed news as the U.S. economy expanded by an annualized 3.2% for quarter three, exceeding expectations at 2.9% and the preliminary value 2.9% announced the previous month. The U.S. Dollar Index ® closed the day up at 104.13 with a gain of 0.32%.

Data released on 23rd December for Durable Goods Orders for November showed a sharp drop in orders by 2.1%, a significant contrast to the figures published for October with a growth of 0.7% (downwardly revised from 1.0%) and significantly worse than market expectations of a decline of 0.6%. This had little impact on the direction of the market after release.

Nondefense Capital Goods Orders ex. Aircraft also released on 23rd December showed a drop in orders as data published an increase of 0.2%, whilst it came out above market expectations of 0.% it fell short of the downwardly revised data released for October of 0.3% (revised from 0.7%), again little impact at the time of release. The U.S. Dollar Index ® closed the day with a loss of 0.16% at 104.01.

The U.S. Dollar Index ® closed the week of 23rd December with a loss of 0.38% at 104.01.

During the final week of December trading the U.S. Dollar bulls drove the market higher during the early part of the week to close positive on 27th December at 103.89 with a gain of 0.06% and on 28th December at 104.18 with a gain of 0.17%. The U.S. Dollar Index ® however struggled to even reach the prior week's high and climb out of the support area sufficiently before the bears returned.

The bears regained control during the final two trading days of the month and the U.S. Dollar Index ® dropped back into the daily area of support, this time there were insufficient buyers to drive the market higher as the demand for the U.S. Dollar weakened. The area broke and the U.S. Dollar Index ® closed below on the final day of December trading to close at 103.27 down 0.36% on the day. The U.S. Dollar Index ® closed the final week of December trading with a loss of 0.55%.

The U.S. Dollar Index ® continued in a downtrend on both the daily and weekly timeframes.

The U.S. Dollar Index ® closed the month with a loss of 2.18% at 103.27 to post a third consecutive losing month. Even with the significant loss over the past three months, the U.S. Dollar Index ® ended 2022 with a gain of 8.02%.

UPCOMING HIGH IMPACT EVENTS
  • Wed 4 Jan ISM Manufacturing PMI (Dec)
  • Wed 4 Jan FOMC Minutes
  • Thr 5 Jan ADP Employment Change (Dec)
  • Fri 6 Jan Nonfarm Payrolls (Dec)
  • Fri 6 Jan ISM Services PMI (Dec)
  • Thr 12 Jan Consumer Price Index (Dec)
  • Fri 13 Jan Michigan Consumer Sentiment (Jan) PREL
  • Tue 17 Jan Retail Sales Control Group (Dec)
  • Wed 18 Jan Retail Sales (Dec)
  • Thr 26 Jan Gross Domestic Product Annualized (Q4) PREL
  • Thr 26 Jan Durable Goods Orders (Dec)
  • Thr 26 Jan Nondefense Capital Goods Orders ex. Aircraft (Dec)

Correlations


The charts identify price turning points between U.S. Dollar Index ®, Brent Crude Oil (BRN), and Bitcoin (XBT) which could be used to identify periods during which prices of each of the markets appear positively or negatively correlated.

ICE Brent Crude plunged in the first week of December to $75.64 from $89.18 and spent the remainder of the month recovering to close the month at $85.91. Initially, expectations of weaker global growth impacted by higher energy costs had challenged any move toward higher prices. However, prices eventually did rise as China announced the easing of Covid-19 restrictions.

  • The International Monetary Fund (IMF) economic outlook for 2023 could be tougher than in 2022, according to IMF Managing Director Kristalina Georgieva, given the main engines of global growth - the United States, Europe, and China - were all slowing simultaneously. Continued weak factory data from China, the world's largest crude importer and second-largest oil consumer, could continue to weigh on prices. The Caixin Manufacturing Purchasing Managers' Index fell to 49.0 in December from 49.4 in November. The index has stayed below the 50-point mark that separates growth from contraction for five straight months.
  • Russia responded to the oil embargo initiated by the European Union by banning the sale of Russian oil to countries participating in the price cap which will be in effect from 1st February to 1st July. The countries joining the EU included G7 countries and Australia. The EU led embargo on Russian seaborne crude took effect on Monday 5th December with the price cap set at $60 per barrel.

BRENT CRUDE OIL (BRN): NEGATIVE (SINCE SEPTEMBER 2022)

NYSE ® BITCOIN INDEX (XBT): NEGATIVE (SINCE JANUARY 2022)

Source: ICE Connect

USDX® Performance


Spot RatesTicker1-Dec-2230-Dec-22Monthly Change
USD/EUREUR A0-FX1.05221.07025

1.687%

JPY/USDJPY A0-FX135.29131.072

3.218%

USD/GBPGBP A0-FX1.22451.2094

-1.249%

CAD/USDCAD A0-FX1.343111.3538

-0.790%

SEK/USDSEK A0-FX10.30510.4258

-1.159%

CHF/USDCHF A0-FX0.93680.92405

1.380%

US Dollar IndexDX A0104.728103.522

-1.165%

Front MonthTicker1-Dec-2230-Dec-22Monthly Change
Mini USDXSDX-ICS104.689103.269

-1.375%

Other ContractsTicker1-Dec-2230-Dec-22Monthly Change
Mini Brent CrudeBM-ICS86.8885.91

-1.129%

MSCI World IndexMWL2746.22615.7

-4.989%

MSCI Emerging Markets IndexMME979959.4

-2.043%

Mini US Dollar/Offshore Renminbi CHM-ICS7.06316.9505

1.620%

Mini USDX Correlations20 Days90 Days255 Days
Mini Brent Crude-0.270.560.02
MSCI World Index0.37-0.81-0.90
MSCI Emerging Markets Index0.11-0.75-0.95
Mini US Dollar/Offshore Renminbi 0.210.530.91

Source: ICE Connect

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