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ICE
July 2022

USDX® Report

Macro Commentary


The U.S. Dollar Index ® (USDX) closed the month at 105.78 with a gain of 1.20%, after reaching a fresh two-decade high of 109.14 on the 14th July.

  • Nonfarm Payrolls data released on 8th July reported 372,000 new jobs were created during June, beating expectations of 268,000, although a slight drop on the prior month's revised number of 384,000. The past three months have averaged 383,000 new jobs, indicating a tightening of the jobs market. The USDX closed the day at 106.82, down 0.01% on the day.
  • Consumer Price Index (CPI) data for all items released on 13th July showed another higher than expected surge as inflation data rose to 9.1%, the largest 12-month increase since November 1981 before seasonal adjustments, accelerated by the rapid rise in energy and food costs. Prices for all items less food and energy (Core inflation rate) recorded a 5.9% increase over the last 12 months, slowing for a third consecutive month. The USDX closed the day at 107.76 with a decline of 0.25%.
  • 27th July the Federal Reserve announced another 75 basis point interest hike to help rein in inflation as it continued to run at a four-decade year high. This increase was expected and matched the rate rise announced in June which at the time was the highest increase seen since 1994. This second consecutive 75 basis point rise was an unprecedented move by the Fed in modern times. The USDX closed the day down at 106.33 with a loss of 0.64%.

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 U.S. Dollar Index ® started July trading bullish as money steadily flowed into the U.S. Dollar after the bearish close to the prior days trading. Even worse than expected June ISM Manufacturing PMI data did not have a major impact on the early market direction. Data released showed manufacturing continued to grow but at a slower pace continuing the year to date downward trend as business activity whilst in expansion territory at 53.0 continued to decline. The data released for June was below market expectations of 54.9 and the prior month’s release of 56.1.

The U.S. Dollar Index ® continued to grind upwards during the day until the market reached a daily resistance area of 105.56 - 104 93 which combined the June high. It was at this point the bears returned and the market began to drop to retake some of the earlier gains. The U.S. Dollar Index ® closed the first day of July trading at 104.91 with a gain of 0.38%.

4th July trading was steady due to the holiday marking Independence Day in the United States. Whilst the market continued to trade, the U.S. Dollar Index ® closed the day virtually where it opened at 104.91 with no change.

5th July trading the U.S. Dollar bulls came out in full force as the U.S. Dollar Index ® rallied throughout the day as money moved swiftly into this safe haven. This coincided with the weakness evident in the Euro, which makes up a considerable portion of the U.S. Dollar Index ® weighting (57.6%) dropped to the lowest level against the U.S. Dollar in two-decades as fears continued to grow about a possible recession across Europe mainly due to the energy crisis. The strength of the U.S. Dollar rally took out the previous high that was set in June as the market made a fresh two-decade high to close the day at 106.32 with a gain of 1.34%.

Trading on 6th July was not to disappoint as the U.S. Dollar extended the rally aided by positive ISM Services PMI released for June. Data showed the service sector economic activity registered a reading of 55.3, which exceeded expectations of 54.5, although it still set a new 12-month low and is the lowest reading since May 2020. The 12-month average is at 60.8 showing a consistent growth in the service sector, which according to data published, had expanded for 25 consecutive months.

6th July also saw the release of the FOMC minutes based on the meeting that took place on 14th - 15th June. Whilst there were no surprises in these minutes, it confirmed the Fed’s stance to continue an aggressive approach to interest rates to help curb the effects of inflation that still runs near four-decade highs. The Fed acknowledged the effects these moves may have on the wider economy and that it may lead to a slowing of economic activity but were optimistic of the long-term goals for bringing inflation into line. The U.S. Dollar Index ® closed with a gain of 0.55% at 106.90.

Trading on 7th July was more indecisive as the bulls and the bears failed to gain much traction in either direction. The U.S. Dollar Index ® closed up at 106.96 with a gain of 0.08%. This was the third consecutive positive close outside of the upper boundary of the daily Bollinger Bands as the market continued to extend its rally.

8th July trading was a rollercoaster as Nonfarm payroll data was released. 372,000 new jobs had been created during June, which was better than expected (268,000 jobs) although a slight drop on the downward revised figure of 384,000 published for May. The past three months have averaged 383,000 new jobs compared to the average over the previous nine months, which came out a little under 529,000 indicating a tightening of the jobs market. After making a fresh 20-year high at 107.62 (values not seen since October 2002) the U.S. Dollar Index ® closed at 106.82 with a loss of 0.01%.

The U.S. Dollar Index ® closed the first full week of July trading with a gain of 1.82% at 106.82. The second consecutive positive close after the U.S. Dollar Index ® closed the first partial week of July trading up by 1.01%.

11th July trading the U.S. Dollar bulls came out in force as money flowed back into the safe haven driven by speculation of a potential big rate hike mounted, concerns of a further wave of Covid-19 in China and overall weakening global economic growth. The U.S. Dollar Index ® rallied throughout the majority of the day breaking through and closing above the 20-year high made on 8th July. The U.S. Dollar Index ® closed at 107.83 with a gain of 1.07%.

12th July trading the U.S. Dollar bulls continued to drive the U.S. Dollar Index ® higher but it eventually met with some resistance when the U.S. Dollar Index ® reached a high of 108.42 and selling pressure came in. This weakness led the U.S. Dollar Index ® to lose earlier gains as the market closed at 107.92 with a loss of 0.08%.

13th July trading the U.S. Dollar bulls drove the market upwards and extended their gains however, the move met resistance as U.S. Dollar Index ® retested the prior day high of 108.42 where an abundance of sellers were present and the market dropped. The latest inflation figures released on 13th July showed CPI data for all items 12-month ending June was another record increase as inflation rose to 9.1%, the largest annual increase since November 1981. The Core inflation rate, which represents all items less food and energy, recorded an increase of 5.9% over the last 12- month period, slowing for a third consecutive month. The US dollar index closed the day down at 107.76 with a loss of 0.25%.

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.

14th of July trading the U.S. Dollar bulls regained control to drive the market higher. The U.S. Dollar Index ® reached a fresh two decade high at 109.14 before pulling back to close the day at 108.41 with a gain of 0.31%.

On 15th July after the previous day’s positive performance, the U.S. Dollar bulls struggled to gain traction and whilst early trading was largely positive any gains were lost as the U.S. trading session began. The morning session had a brief moment of respite as economic data was released. The U.S. Dollar briefly rose as retail sales data published an increase of 1.0% against market expectations of 0.8% and the previous drop in sales, revised upwards to -0.1%. Michigan Consumer Sentiment Index information came with some welcomed news as data published above expected figures at 51.1 against expectations of 49.9 and June data at 50. After the market digested the data, ultimately the bears regained control.

Trading throughout the majority of the day was generally bearish and the U.S. Dollar Index ® closed the day at 107.91 with a loss of 0.49%.

The U.S. Dollar Index ® closed the week with an overall gain of 1.15% at 107.91, for a third consecutive higher close.

Monday 18th July early trading the bears drove prices lower until the market tested an area of support which is evident on a daily chart with a range of 107.05 – 106.53 where buyers were waiting. The U.S. Dollar Index ® took a bounce from this area and regained some of the earlier losses however, the U.S. Dollar Index ® closed down for the day at 107.23 with a loss of 0.54%.

Trading on 19th July started slightly positive until the European session where there was little appetite for the safe haven and the U.S. Dollar Index ® traded lower. The U.S. Dollar Index ® retested an area of support that held on the previous day but on this test, there were very few willing buyers compared to the sellers and the U.S. Dollar Index ® broke below this area. The U.S. Dollar Index ® reached a low of 106.25 before it took an upwards bounce off the daily 20 EMA that acted as support to close the day at 106.55 down 0.70%. This was the third consecutive lower close and the U.S. Dollar Index ® over three days had lost 1.74% in value.

20th July the U.S. Dollar Index ® dropped slightly during early trading to retest the daily 20 EMA with the 20 SMA just below and again, buyers stepped in propelling the market upwards. The U.S. Dollar Index ® closed the trading day positive with a gain of 0.37% at 106.95.

Trading on the 21st of July again proved to be a day where the 20 SMA this time acted as support as the U.S. Dollar Index ® almost reached it before finding buyers that drove prices higher to recover some of the earlier losses. The U.S. Dollar Index ® closed the day down at 106.80 with a loss of 0.16%.

Trading on the 22nd July found the U.S. Dollar Index ® had no clear direction and the market dropped through both of the daily 20 period moving averages which had previously acted as support. The bulls returned when the market reached a small pocket of support evident on a 2-hour chart at 106.08 – 105.85 created a few days earlier. The U.S. Dollar Index ® reached a low of 105.99 and the market rallied to close with a modest gain of 0.09% at 106.62.

The U.S. Dollar Index ® closed the week down at 106.62 with a loss of 1.11%, the first losing week of the month.

25th July started with little action during the Asian and European sessions. Once the U.S. session opened the U.S. Dollar Index ® dropped to reach a small pocket of support which had been tested on the previous Friday at 106.08 – 105.85. The U.S. Dollar Index ® started to lift from this area although there was insufficient buying power to drive prices back towards the days open. The U.S. Dollar Index ® closed the day marginally lower at 106.35 with a loss of 0.05%.

Trading on 26th July saw the U.S. Dollar bears return and the U.S. Dollar Index ® traded lower to retest the small pocket of support at 106.08 – 105.85 which held on the previous tests. The bulls were waiting at this level and drove prices higher throughout the remainder of the trading day. This rally just fell short of a small 2-hour pocket of resistance at 107.32–107.49 as sellers stepped into the market. The U.S. Dollar Index ® closed the day at 107.04 with a gain of 0.69%.

On 27th July, the market hesitated just below the resistance area for the majority of Wednesday trading as the market awaited the Feds interest rate decision. Earlier in the day, data was released for Durable Goods Orders for June, which brought positive news as the data recorded 1.9% increase against an expected decline of -0.4% and above the previous reading of 0.8% (revised upward from 0.7%). Nondefense Capital Goods Orders ex. Aircraft was also released, this too published above expected numbers at 0.5% against 0.2% (expected) although slightly short of the revised 0.6% data released for May (revised from 0.5%). Neither sets of data had too much of an impact of the U.S. Dollar Index ® direction.

The announcement came from the Fed later in the day on 27th July; the Federal Reserve increased interest rates by 75 basis points raising its benchmark rate to a range of 2.25% to 2.5%, the highest range seen since December 2018. Whilst the market viewed the rate hike at 75 basis points may happen it was still an unprecedented rate hike as it equaled the rate hike that was seen in June ( which was the largest seen since 1994). This represented the first time in modern Fed history that the Federal Reserve had raised rates by 75 basis points at two consecutive meetings.

The Fed‘s monetary policy statement and press conference confirmed the aggressive action taken by the Fed was needed to combat the effects of inflation. The Fed looked at the jobs gains and whilst this has slowed over the last three months, it still showed a robust figure and the unemployment rate had continued to remain low.

Following the interest-rate announcement and policy, details the U.S. Dollar Index ® dropped from a high of 107.24 to close at 106.30 a loss of 0.88% within the initial hour after release.

Overall, the U.S. Dollar Index ® closed the day down at 106.33 with a loss of 0.64%.

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 Inflation Expectation Indexes

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

28th July early trading the U.S. Dollar Index ® continued to fall. GDP data initially discouraged the bulls from returning as the figures released were below market expectations. The annualised preliminary quarter two GDP figures showed a decline of 0.9% against expectations of a growth of 0.5% that followed a decline of 1.6% in quarter one technically it showed the U.S. economy continued to shrink for two consecutive quarters. If figures are negative for two quarters this is often considered that, the economic environment is in a recession although this is a ‘rule of thumb’ rather than an official definition.

Nonetheless, the U.S. Dollar Index ® traded lower until it reached the same pocket of support that had held the market for a number of days. The U.S. Dollar Index ® reached a low of 105.92 before the bulls returned and the market rallied from this area but ultimately the bulls could not maintain control throughout the day and U.S. Dollar Index ® closed trading at 106 .23 with a loss of 0.03%.

On the final day of July, trading the U.S. Dollar Index ® broke down below this small pocket of support and continued to drop until prices reached a low at 105.41 where fresh support was found as the market approached the lower boundary of the daily Bollinger Bands. The U.S. Dollar Index ® pulled back slightly to close the last day of trading at 105.78 with a loss of 0.27%.

The U.S. Dollar Index ® closed the week with a loss of 0.59% this was the second consecutive losing week for the month.

The U.S. Dollar Index ® closed the month with a gain of 1.20% at 105.78 for a second consecutive higher monthly close. The whole month traded 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 continued as the U.S. Dollar Index ® remained trading above a 20 SMA. On a daily chart, the uptrend was vulnerable as the U.S. Dollar Index ® had dropped below the 20 SMA to trade in the lower range of the daily Bollinger Bands and had tested the lows of the upward trend line.

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.

Brent Crude Oil (BRN): Positive (since September)

NYSE® Bitcoin Index (XBT): Negative (since January)

Source: ICE Connect

USDX® Performance


Spot RatesTicker1-Jul-2229-Jul-22Monthly Change
USD/EUREUR A0-FX1.04281.02248

-1.987%

JPY/USDJPY A0-FX135.175133.19

1.490%

USD/GBPGBP A0-FX1.20941.2175

0.665%

CAD/USDCAD A0-FX1.28831.2794

0.696%

SEK/USDSEK A0-FX10.303610.1391

1.622%

CHF/USDCHF A0-FX0.959180.9512

0.839%

US Dollar IndexDX A0105.138105.903

0.722%

Front MonthTicker1-Jul-2229-Jul-22Monthly Change
Mini USDXSDX-ICS104.909105.779

0.822%

Other ContractsTicker1-Jul-2229-Jul-22Monthly Change
Mini Brent CrudeBM-ICS111.63103.97

-7.368%

MSCI World IndexMWL2570.92752.9

6.611%

MSCI Emerging Markets IndexMME996.5998.5

0.200%

Mini US Dollar/Offshore Renminbi CHM-ICS6.70566.7363

-0.456%

Mini USDX Correlations20 Days90 Days255 Days
Mini Brent Crude0.00-0.000.00
MSCI World Index-0.57-0.87-0.89
MSCI Emerging Markets Index-0.79-0.92-0.97
Mini US Dollar/Offshore Renminbi 0.320.840.75

Source: ICE Connect

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