The U.S. Dollar Index ® (USDX) ended its four-month losing streak to gain 2.85% in February and closed the month at 104.83.
U.S. Dollar Index® Focus
INDEX WEIGHTING: EUR 57.6% | JPY 13.6% | GBP 11.9% | CAD 9.1% | SEK 4.2% | CHF 3.6%
February trading started bearish as the demand for the U.S. Dollar declined and money moved away from the safe haven throughout the day. This was compounded by negative ADP Employment Change which announced 106,000 new jobs were created by private businesses during January, falling short of expectations at 178,000 and significantly below December's revised figures at 253,000 (from 235,000).
Disappointing ISM Manufacturing PMI data was also released for January recording a further decline from 48.4 in December to 47.4 in January. This was also markedly below expectations of 48.0 and the third contraction in manufacturing activity since May 2020.
The U.S. Dollar demand weakened further as the Fed released its first interest rate decision of the year. The Fed raised rates by 25 basis points taking the target funds rate to 4.5% - 4.75% to indicate a further easing of rate hikes. However, officials also expressed that more rate rises are likely in 2023 as they continue to work to rein in inflation as a priority whilst balancing the economic environment.
The U.S. Dollar Index ® closed the first day of February trading at 101.03, with a loss of 0.88%, the largest one-day loss of the month.
Demand for the U.S. Dollar returned on 2nd February after the market dropped into a daily support area at 100.69 - 99.77 combined with the lower boundary of the daily Bollinger Bands. The U.S. Dollar Index ® rallied as the bulls returned to close the day up at 101 58 with a gain of 0.82%.
On 3rd February this bullish momentum continued, and the U.S. Dollar gained strength. This was aided by positive Nonfarm payrolls data, which showed that 517,000 new jobs were created in January, surpassing the consensus estimate of 185,000 jobs and the 260,000 jobs created in December. The January jobs report also showed that the unemployment rate fell to 3.4%, which was lower than the estimated rate of 3.6% and December's rate at 3.5% (which was the lowest since 2020) to mark the lowest level since May 1969. Average hourly earnings increased by 0.3% in January, to match market expectations although a slight drop on the prior month following an upwardly revised figure in December at 0.4%. Over the past 12-months the average hourly earnings have increased by 4.4%, the least growth seen since 12-month ending August 2021.
Also out on 3rd February was the ISM Service PMI data for January which brought welcomed news, publishing a figure of 55.2 after December's disappointing 49.2 (downwardly revised from 49.6, the lowest value recorded in over two years).
The day's announcements prompted the market to rally and the U.S. Dollar Index ® blasted through the midpoint of the daily Bollinger Bands and closed to post the largest one-day gain of the month at 102.76 with a gain of 1.09%.
The U.S. Dollar Index ® closed the trading week ending 3rd February with a gain of 0.99% at 102.76.
On 6th February the U.S. Dollar Index ® continued to rally during trading as the bulls maintained control. The market rallied through the upper boundary of the daily Bollinger Bands to close at 103.50 with a gain of 0.59%.
The market continued to drift upwards during early trading on 7th February, although eventually took a bearish turn when the U.S. Dollar Index ® reached a high of 103.85. There was news from Fed Chair Powell regarding the economic outlook and monetary policy. Powell expressed that while inflation had begun to ease, bringing it in line with expectations would be a challenge and cautioned that the stronger than expected economic data could lead to more rate rises than had initially been priced in for 2023. This created a mixed reaction in the market and the U.S. Dollar Index ® closed the day at 103.30 with a loss of 0.11% to settle on the upper boundary of the daily Bollinger Bands.
On 8th February the market steadily traded lower and traded back below the upper boundary of the daily Bollinger Bands until the U.S. Dollar Index ® almost reached the prior day's low when the bulls returned. President Joe Biden delivered his annual State of the Union address where he outlined his policy goals and achievements since taking office he also addressed his legislative agenda for the coming year and economic goals. The U.S. Dollar Index ® closed the day at 103.27 with a gain of 0.10%.
The bullish outlook was short lived as the bears returned on 9th February after the market reached resistance back at the upper boundary of the daily Bollinger Bands and the U.S. Dollar Index ® dropped. Demand for the U.S. Dollar was found when the market reached the daily 20 EMA where it reversed to recover some of the earlier losses to settle with a close of 103.11 to post a loss of 0.27% for the day.
On the final trading day of the week the bulls returned as the Michigan Consumer Sentiment Index published positive figures as sentiment grew to record 66.4, exceeding expectations of 65.0 and data released in December at 64.9. The U.S. Dollar Index ® closed at 103.54 with a gain of 0.40%.
The U.S. Dollar Index ® closed the second week of February trading with a gain of 0.62%.
The U.S. Dollar bears returned on 13th February and the U.S. Dollar Index ® dropped from a high of 103.75 to close with a loss of 0.18% at 103.25.
The latest inflation figures released on 14th February showed the pace of inflation continued to soften as Consumer Price Index (CPI) data for all items 12-month ending January rose by 6.4% falling from a 6.5% rise in December. This represented the lowest 12-month increase since October 2021 and marked a seventh successive fall.
The Core inflation rate, which represents all items excluding food and energy, eased to record an increase of 5.6% over the period 12-month ending January falling from the 5.7% rise for12-month ending December, the lowest rise since December 2021 (5.5%).
The U.S. Dollar Index ® made a high for the day at 103.44, when selling pressure returned and the bears took control and the market dropped to break the daily 20 EMA before finding support near the midpoint of the Bollinger Bands where the bulls returned. The U.S. Dollar Index ® closed the day at 103.12 with a modest gain of 0.02%.
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:
Retail Sales data released on 15th February brought some positivity into the market and the demand for the U.S. Dollar increased. Data published surpassed market estimates to record a growth in retail sales month on month of 3.0%, welcomed news after the decline in sales recorded for December. The U.S. Dollar Index ® rallied on this news to close the day at 103.84 with a gain of 0.70%.
The U.S. Dollar bulls struggled to gain further momentum the following day and after the market reached a high of 104.17 the market pulled back as the bears returned and the market dropped. The U.S. Dollar Index ® reached a low of 103.47 and again the bulls pushed back. The U.S. Dollar Index ® settled to close at 103.79 with a small loss of 0.02%.
The bulls continued to drive prices higher during trading on the 17th February but again could not hold their ground and the U.S. Dollar Index ® after reaching a high of 104.61to breach the upper boundary of the daily Bollinger Bands the market closed the day down at 103.78 with a loss of 0.30%.
The U.S. Dollar Index ® closed the week with a gain of 0.33%.
Trading on 20th February was mixed with neither the bulls nor the bears making a huge impact on the market direction, the U.S. Dollar Index ® closed the day with a small loss of 0.05% to settle on Friday’s close at 103.78.
On 21st February the demand for the U.S. Dollar increased as money flowed back into the safe haven and the market rallied. The U.S. Dollar Index ® closed the day at 104.11 with a gain of 0.25%.
The bullish momentum continued to pick up pace during trading on the 22nd February and the U.S. Dollar Index ® rallied throughout the majority of the day. FOMC Minutes from the Fed’s meeting earlier in the month were released. The minutes showed policymakers came to a consensus to slow the pace of interest rate hikes although they also indicated that curbing the high rate of inflation would continue to be a key factor in determining how much future rates need to rise. The meeting minutes also suggested that officials struck a balance between concerns about the economy slowing down and those who believed that inflation would remain high. Policymakers agreed that interest rates needed to increase, but smaller rate hikes would be more appropriate, allowing them to be more flexible with decisions based on future economic data. The U.S. Dollar Index ® closed the day at 104.52 with a gain of 0.47%.
The demand for the U.S. Dollar continued into trading the following day although met resistance at the high after preliminary data for GDP data was released. The U.S. economy expanded by an annualized 2.7% for quarter four, and whilst this was preliminary data it showed a drop from the prior release of 2.9% and the 2.9% anticipated. The U.S. Dollar Index ® closed the day with a gain of 0.10% at 104.53.
The bullish sentiment returned the following day as money flowed into the U.S. Dollar and the U.S. Dollar Index ® rallied to close the day just short of the upper boundary of the Daily Bollinger Bands with a gain of 0.68% at 105.16.
Overall, the U.S. Dollar Index ® closed the week with a gain of 1.28%, the largest weekly gain of the month.
On Monday 27th February, the demand for the U.S. Dollar weakened as the bears returned after the market reached a high of 105.32. The drop in demand throughout the majority of the day was aided by worse than expected Durable Goods Orders for January which showed a significant slowdown, with a decline in orders to -4.5%, in stark contrast to the prior month's increase of 5.1% (revised down from 5.6%) and also below expectations of a decline of 4.0%.
Nondefense Capital Goods Orders ex. Aircraft also released on the same day showed an increase in orders of 0.8%, to beat expectations of a flat recording and the prior month's decline of -0.3% (revised from - 0.2%). The U.S. Dollar Index ® closed the day with a loss of 0.56% at 104.62.
The bulls returned on the final trading day of the month and the U.S. Dollar Index ® closed at 104.83 with a gain of 0.21%.
Based on February’s price action the U.S. Dollar Index ® is in an uptrend on the daily timeframe using the daily SMA (10, 20, 30) and daily EMA (10, 20, 30) and on a weekly has reverted to an uptrend using the weekly 10 SMA and EMA 10.
The U.S. Dollar Index ® ended its four-month losing streak to close the month with a gain of 2.85%, at 104.83.
Upcoming High Impact Events
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 fell in the opening week of February to set the low for the month at $78.84, and reached an intra-month high at $86.55. Price fell back towards $80.00 and managed to close at $83.45 as news emerged on an improving Chinese economy which gave rise to higher expectations for increased oil demand.
BRENT CRUDE OIL (BRN): NEGATIVE (SINCE SEPTEMBER 2022)
NYSE ® BITCOIN INDEX (XBT): NEGATIVE (SINCE JANUARY 2022)
Source: ICE Connect
|Spot Rates||Ticker||1-Feb-23||28-Feb-23||Monthly Change|
|US Dollar Index||DX A0||101.217||104.869||3.482%|
|Front Month||Ticker||1-Feb-23||28-Feb-23||Monthly Change|
|Other Contracts||Ticker||1-Feb-23||28-Feb-23||Monthly Change|
|Mini Brent Crude||BM-ICS||82.84||83.89||1.252%|
|MSCI World Index||MWL||2825.8||2716.8||-4.012%|
|MSCI Emerging Markets Index||MME||1057.8||962.9||-9.856%|
|Mini US Dollar/Offshore Renminbi||CHM-ICS||6.7406||6.9504||-3.019%|
|Mini USDX Correlations||20 Days||90 Days||255 Days|
|Mini Brent Crude||-0.07||0.69||-0.28|
|MSCI World Index||-0.78||-0.82||--0.84|
|MSCI Emerging Markets Index||-0.97||-0.95||-0.92|
|Mini US Dollar/Offshore Renminbi||0.89||0.92||0.87|
Source: ICE Connect