- The US dollar is gaining in value after the release of preliminary December PMI data.
- Traders are joyful that the Services PMI is ahead of previous numbers and estimates.
- The US Dollar Index (DXY) is back above 107.00 and heading towards 107.35.
The US dollar (USD) gains on Monday after a rather gloomy day. The turnaround comes after a very positive preliminary release of the S&P Global Services Purchasing Managers’ Index (PMI) for December. A print of 58.5 compared to the previous level of 56.1 and the consensus level of 55.7 knocks it out of the park and gives the dollar the wind it needs to shake off the disappointing results that occurred earlier this Monday.
Monday’s first move came after China’s retail sales rose 3.0% in November, below analysts’ low estimate of 4.2% and well below the median estimate of 5.0%. It is clear that the stimulus measures introduced by the Chinese government are not having the impact that markets expected.
Meanwhile, preliminary data on the S&P Global and Hamburg Commercial Bank (HCOB) Purchasing Managers’ Index (PMI) for December have been published for European countries and the euro zone. Overall, industrial production continues to shrink in both France and Germany. The only exception is German services, which again show an expansion of 51.0 against the expected 49.3.
German Chancellor Olaf Scholz will be able to utilize these latest data to his advantage during the meeting in the Bundestag scheduled for Monday, during which the Chancellor faces a vote of no confidence. If he loses, the German government will collapse, just like in France, and early elections will probably be held on February 23.
Daily summary of market changes: PMI difference between the euro and the US is bigger again
- China’s retail sales data for November missed market estimates at 3.0% year-on-year compared to the expected 4.6%, pushing the dollar higher against the Chinese yuan (USD/CNH).
- A surprisingly positive PMI for German services, combined with the possibility of early elections in Germany, is pushing the euro up against the US dollar (EUR/USD).
- At 2:45 p.m., preliminary data from the American agency S&P Global PMI for December were published:
- The services PMI jumped to 58.5, beating estimates of 55.7 and well above the previous reading of 56.1.
- The manufacturing component fell further by 48.3, below the estimate of 49.4 and the previous print of 49.7.
- The leading element will be services, with a weaker US dollar in the event of a significant contraction in services, while upbeat data would result in greater US dollar strength across the board.
- Shares are lagging against the euro as S&P Global Services’ PMI release revives U.S. stocks. The Nasdaq is leading the pack, up almost 0.70%.
- The CME FedWatch Tool estimates the Fed’s next 25 basis point (bps) rate cut at its December 18 meeting at 97.1%.
- The US benchmark 10-year bond rate is 4.39%, just slightly below last week’s 4.40%.
US Dollar Index Technical Analysis: The gap between Europe and the United States just widened
The US Dollar Index (DXY) is showing signs of fatigue, with price action slowing and starting to swing sideways. Traders are comfortable with what has been priced in and are likely waiting for anything else until President-elect Donald Trump takes office or if U.S. data spurs any move. Uncertainty about what measures Trump will introduce and which will be mere threats used as bargaining chips could keep DXY in its grip until the end of January.
On the other hand, the 107.00 level remains a key level that needs to be reclaimed before considering the 108.00 level. When and if this finally happens, the next level to watch will be the fresh 2-year high of 108.07 recorded on November 22.
Looking down, 106.52 is the recent first support level for profit taking. Next up is the key level at 105.53 (April 11 high), which comes into play before moving into the 104 region. If DXY falls towards 104.00, the 200-day plain moving average at 104.19 should catch any falling knife formation.
US Dollar Index: Daily Chart
