The U.S. dollar (USD) tied gains on Wednesday, with markets slightly strained ahead of Nvidia Corp. (NVDA) earnings after the U.S. closing bell. With seeing the recent slowdown in some economic figures and with the boom around artificial intelligence (AI) slowing, traders are wondering if Nvidia Able to maintain its growth pace and superior winning streak. Failure to achieve estimates could spark some sharp moves in risk aversion, a scenario that would put the US dollar back into the fold of traders as safe-haven flows emerge..
On the US economic calendar, there are almost no data points that markets can digest on Wednesday. This increases the tension and expectations about Nvidia’s earnings.Even Fed officials don’t expect to show up early, as Atlanta Fed President Rafael Bosic is only scheduled to speak
The US Dollar Index (DXY) is experiencing a very strange driver that dictates the trend. Assumption is very easy: If Nvidia’s earnings again exceed expectations, a new wave of risk flows is likely to push stocks higher and the US dollar lower. If earnings fall in line with or below expectations, the US dollar is expected to rise and risk flows will push stocks south.
To recover, the US dollar index faces a long way to go. First, 101.90 is the level that must be restored. A sharp 2% rally will be needed to raise the index to 103.18 from the current 101.00. The very heavy resistance level near 104.00 not only carries a pivotal technical value, but also holds the 200-day simple moving average (SMA) as the second heavy weight level to limit price action.
Emerging Market Currencies Fall on Anticipation of NVIDIA Results
Most emerging market currencies posted losses on Wednesday amid concerns that the recent dollar sell-off has gone too far. Equity investors waited for signals from NVIDIA’s results later in the day to gauge the outlook for the technology sector.
Asian semiconductor stocks rose as investors awaited NVIDIA’s results amid a heated debate over whether companies investing in artificial intelligence will deliver the promised earnings quickly enough. The MSCI Emerging Markets Index was little changed, with losses in Chinese technology stocks offset by gains in Taiwan Semiconductor Manufacturing Co. andSamsung Electronics..
The dollar rebounded on Wednesday, sending the MSCI Emerging Currency Index down for a second day. The emerging markets gauge, which measures overall returns in currencies including interest income, remains on track for its biggest gains since November.
Even with financial markets priced at 100 basis points of interest rate cuts by the Federal Reserve this year, investors remain alert for renewed strength in the dollar given the risks surrounding the US presidential election and global geopolitics.
Since Powell did not strongly shift the odds in favor of a 50 basis point cut by the Fed at the September meeting, some market participants see the dollar as overly weakened.” “Local factors also set the tone for emerging market currencies. “The Mexican peso is a very good example as it fell yesterday in response to a major step taken to implement a controversial judicial reform,” Mattis added.
Meanwhile, Israel’s central bank is set to maintain interest rates for its fifth consecutive meeting, in a bid to balance the weak economy against inflationary pressures as war spending rises.
Credit default swaps that protect against default risk in emerging markets have eased, suggesting that the Fed’s easing outlook is helping to stabilize sentiment on riskier assets.
EUR Falls Against the Dollar on Expectations of U.S. Interest Rate Cuts
EURUSD fell in mid-week trading, but the rally could last a little longer before a more coordinated collapse lowers it to parity.
The euro’s continued strength has surprised us. However, it is a common pattern before the start of the Fed’s rate cuts. EUR/USD will weaken this autumn
The EUR/USD exchange rate rose 3.0% in August, but is retreating from its peak at the time of writing. In fact, the exchange rate fell by half a percent a day, which, if it continues until the lockdown, would be its biggest daily loss in August.
He is on the sidelines regarding EURUSD and “will again consider selling the EUR/USD pair closer to the Fed meeting in September.”
“Over the next four weeks, the EUR/USD pair is likely to surpass its July 2023 high of 1.13. However, this level will be a selling point,” he says.
The euro, along with the rest of the G-10 currencies, benefited from growing expectations that the Fed will cut interest rates in September. These expectations were strongly reinforced by Fed Chairman Jerome Powell’s recent speech at the Jackson Hole symposium, where he said “the time has come” to act.
Analysts we follow note that the EUR/USD advance comes despite the Eurozone’s shaky fundamentals, confirmed by German GDP figures this week that showed the region’s largest economy contracted 0.1% quarter-on-quarter in the second quarter. Germany’s Ifo survey showed that current conditions deteriorated further in August, and German consumer confidence for September fell compared to expectations.
With the deterioration of the third-quarter survey data compared to the second quarter, this increases the risk of a shallow German recession. Meanwhile, Eurozone PMI data released last week showed a deterioration in expectations among Eurozone companies, which bodes well for slowing activity in the coming months.
