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The US dollar is approaching the 100 mark, why has it climbed to a high level quietly?
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Hello everyone, today XM Forex will bring you "[XM Group]: The US dollar is approaching the 100 mark, why has it climbed to highs quietly?". Hope this helps you! The original content is as follows:
On Friday (January 16), the U.S. dollar index was trading around 99.20 before the U.S. market opened, and was in a state of "low fluctuations upward + high fluctuations" that has been rare in recent years. Unlike the violent rises triggered by unexpected events in the past, this round of rises is more like being slowly pushed up by an invisible force. There was no panic in the market, nor was there any large-scale pursuit of gains, but the U.S. dollar was rising step by step. The driving force behind it is not a single factor, but the result of the joint action of macro fundamentals and capital flows.
Recently released economic data such as retail sales and initial jobless claims in the United States are generally strong. In particular, the number of initial jobless claims dropped to 198,000 in the week ending January 10, far lower than the expected 215,000, showing that the U.S. labor market is still resilient. At the same time, the Beige Book released by the Federal Reserve also pointed out that the economy is in a stage of moderate expansion and there are no obvious risks on the employment side. This information has slightly adjusted the market's expectations for the pace of interest rate cuts - this week's terminal interest rate expectations have been raised by 5 basis points. Although the magnitude is not large, it has corrected 32 basis points since the low in October last year. This marginal upward revision of interest rate expectations is one of the core logics supporting the slow strengthening of the US dollar.
The expected rise in interest rates will affect the U.S. dollar through two paths: First, it will expand the interest rate advantage between U.S. bonds and bonds of other countries, attracting international capital inflows; second, it will change the discount rate of carry transactions and global asset allocation, prompting some funds to flow back into U.S. dollar-denominated assets. Due to the gentle adjustment process and low volatility, the US dollar did not show a pulse-like rise, but showed the characteristics of "grinding up", which also explains why the recent trend seems flat but continues to rise.
Are funds still “buying dips” in U.S. assets?
Behind the dollar are not just interest rate expectations, but also capital inflows. According to November TIC data released by the U.S. Department of the Treasury, overseas investors continue to increase their holdings of various U.S. assets. Although there are fluctuations in single-month data, based on the rolling 12-month average, overseas net purchases of U.S. assets in November were approximately US$100 billion per month, significantly higher than the monthly level of approximately US$25 billion in the summer of 2024. This shows that external demand for U.S. dollar assets has not weakened, but is increasing.
But the reality is more www.xmtraders.complicated. If the hedging ratio of overseas investors increases, it may weaken the actual effect of dollar buying in the spot market. Because the hedging operation itself creates reverse pressure in the forwards and swaps markets. Therefore, although capital inflows are good for the US dollar, it does not mean that the US dollar will inevitably continue to rise unilaterally. The true direction still depends on the game between interest rate trends and hedging behavior. At present, the former is dominant, and the latter has not yet formed a systemic reversal force, so the US dollar can still maintain a strong consolidation pattern.
Geopolitical undercurrents and policy intervention are brewing variables
Although fundamental support is solid, there are still potential sources of disturbance in the calm market. The first is the risk premium brought about by geopolitics. The dollar's rebound this year has been partly attributed to rising global tensions and widespread expectations that the Federal Reserve will maintain a wait-and-see approach at the next several FOMC meetings. In this environment, the role of the U.S. dollar as a safe-haven asset has once again become prominent.
However, once the geopolitical situation shows signs of easing, the risk premium may quickly retreat, putting periodic pressure on the US dollar. Especially on trading days when economic data is relatively light, the market is more likely to make position adjustments around breaking news, causing the dollar to fluctuate in discontinuous directions. In addition, another risk that cannot be ignored www.xmtraders.comes from "intervention". Analysts note that if the dollar against the yen approaches 160, Japan may take intervention measures to sell dollars. What’s more interesting is that the U.S. Treasury Department’s attitude towards such actions has been interpreted by the market as “tacit approval or even support”, which means that once intervention occurs, its influence cannot be underestimated.
Although intervention is usually difficult to reverse the medium-term trend, it is enough to disrupt the short-term rhythm. Once the U.S. dollar falls back quickly, programmed trading and stop-loss orders may be triggered, amplifying intraday fluctuations. This will break the current "low volatility upward" pricing logic and cause the market to re-evaluate the U.S. dollar's operating model.
Technical revelation: The long-short tug-of-war is about to break out
From the technical graphics, the U.S. dollar index once shot up to 99.4979 on the 240-minute cycle and then fell back. It is currently oscillating in a narrow range around 99.20. The key resistance above is located at the 99.50 area. If it can effectively break through, it is expected to steadily advance towards the 100 integer mark; conversely, if the important psychological level of 99 below is lost, the short-term structure may turn into a correction and test the previous low of 98.6687, with further support looking at 98.1567.
In terms of indicators, the MACD column is only 0.0001, and DIFF and DEA are almost glued to 0.112Between 8 and 0.1129, it shows that the trend momentum is extremely mild, which is a typical strong consolidation form, rather than a signal of accelerating rise. The RSI (14) reading is about 59.0684, which is in the neutral to strong range, indicating that bulls still have the upper hand, but it has not entered the overbought zone, leaving room for further upside and the flexibility to pull back.
Taken together, whether the U.S. dollar can continue its upward trend in the short term depends on two key verifications: first, whether interest rate expectations will continue to be slightly upwardly revised or at least not significantly lowered, which is the basis for maintaining strength; secondly, whether overseas capital inflows and risk appetite can be sustained. At the same time, attention will be paid to whether the hedging ratio increases and thereby weakens the marginal support of the U.S. dollar. In the absence of new major catalysts, the US dollar is more likely to trade time for space, fluctuate repeatedly at high levels, digest the previous gains, and wait for the next round of macro and news re-pricing.
The above content is all about "[XM Group]: The US dollar is approaching the 100 mark, why has it climbed to a high level quietly?" It was carefully www.xmtraders.compiled and edited by the XM foreign exchange editor. I hope it will be helpful to your trading! Thanks for the support!
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