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 May trading on a positive footing with the bulls regaining control after the drop on the last day of April trading which ended a 6-day bull run. Even with disappointing ISM Manufacturing PMI data released for April at 55.4 that showed a decline (as numbers published came out below expectations of 57.6 and the prior month at 57.1) did not have much of an impact on the market. The demand for the U.S. Dollar drove the U.S. Dollar Index® higher to close the 2nd May with a gain of 0.52% at 103.77 above the prior days high.
After a bearish start to trading on 3rd May, where the U.S. Dollar Index® dropped to a low of 103.06 the market found some demand as the buyers stepped in driving the U.S. Dollar Index® upwards to recover some of the day’s earlier losses. The U.S. Dollar Index ® closed the day down by 0.10% at 103.50.
This demand was only temporary as the bears came back out in force during trading on 4th May, aided by the negative news as ADP Employment Change for April announced 247,000 new jobs created, woefully below expectations where private employment was anticipated to expand by 395,000 and also marginally below March revised figures of 249,000 (revised significantly down from 455,000). The negative news continued to flow as ISM Services PMI data released for April at 57.1, a decline on the prior month's announcement at 58.3 and below expectations of 58.5.
The Federal Open Market Committee also met on 4th May to review overall economic activity. Insights showed whilst the Fed are open to pursue aggressive interest rate moves there is an appreciation that economic activity has dampened slightly. On the positive side job gains continued along with unemployment rates falling. Concerns raised with the latest COVID related lockdowns in China and the impact this will create with further supply chain disruptions adding to economic pressure. Inflation clearly remained one of the Feds priorities to bring in line over the longer term using appropriate monetary policy. The interest rate decision to increase by 50 basis points to 1.0% was the largest increase in interest rates in 22 years as the Fed try to bring inflation down from these 40-year highs.
The U.S. Dollar Index® reached a high of 103.67 the market dropped to close within the first 30-minutes down 0.59%. Overall, the U.S. Dollar Index ® closed down for the day at 102.59 reporting a loss of 0.86% after taking a small bounce from the daily 10 SMA that it had not closed below since the end of March.
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The U.S. Dollar Index® quickly recovered during trading on 5th May as the bulls were firmly in control to close the day at 103.80 posting the largest single day gain for the month at 1.20% with a high of 103.97. This high just fell short of a monthly area of resistance created back in 2002 with a wide range of 104.12 – 109.75.
During early trading on 6th May the bulls continued to gain ground although these gains reversed as U.S. Dollar Index® dropped significantly throughout the early U.S. session. Nonfarm payrolls data released on 6th May showed 428,000 new jobs created during April, this exceeded expectations of 391,000 and the numbers released for March at 398,000. Whilst the news showed a continued increase in new jobs created, the U.S. Dollar bulls lacked the appetite to step at the time. The U.S. Dollar Index® recovered towards the end of the trading day to close at 103.69 with a gain of 0.08%.
The U.S. Dollar Index® closed the first week of May at 103.69, with a gain of 0.45%.
Monday 9th May trading the U.S. Dollar bulls continued to make gains, however the U.S. Dollar struggled to gain significant ground and after the U.S. Dollar Index® broke above the prior day high sellers returned driving prices lower. The U.S. Dollar Index® closed trading at 103.69, no change for the day.
On 10th May the bulls gained the upper hand and the U.S. Dollar Index® rallied although was unable to reach the prior days high and ended the trading day an inside day at 103.94 with a gain of 0.21%. During trading on 11th May the bears managed to overcome the bulls and the U.S. Dollar Index® closed the trading day at 103.96 with a small loss of 0.08%. The U.S. Dollar Index® had been locked in a range for the past four days with the overhead resistance from the monthly resistance area at 104.12 – 109.75.bearing down whilst the bullish sentiment for the U.S. Dollar struggled to gain significant traction after a strong April performance.
On 12th May, the U.S. Dollar bulls managed to regain control and the U.S. Dollar Index® continued to trade higher into the wider monthly resistance area of 104.12 – 109.75 posting a strong gain for the day up 0.79% with a close of 104.90. Here the sellers were waiting and the U.S. Dollar bears took control during the U.S. trading session on the 13th May and after putting in a high at 105.07 (the highest the U.S. Dollar Index® had traded since 2002) the U.S. Dollar Index® traded lower throughout the remainder of the day. The U.S. Dollar Index closed trading at 104.62 with a loss of 0.20%.
After a steady start to the trading week, the U.S. Dollar Index® closed the second week of trading at 104.62 with a gain of 0.90.
It was in the resistance area of 104.12 – 109.75, tested on 13th May that the bearish momentum began to gather pace from throughout trading on 16th May. With little in the way of support, the U.S. Dollar Index ® closed trading at down at 104.20 with a loss of 0.43%. The bearish sentiment continued throughout trading on 17th May and even positive Retail Sales data published for April was not enough to entice the U.S. Dollar bulls back. The Retail Sales data showed a month-on-month increase at 0.9% compared to the estimated 0.7% growth albeit below March revised numbers at 1.4% (revised from 0.5%). The U.S. Dollar Index ® closed trading for the day at 103.41 recording a loss of 0.74%. This was the third day of consecutive losses.
There was some brief respite for the U.S. Dollar Index® on 18th May as buyers stepped in as the market tested the daily 20 SMA and took a bounce. The U.S. Dollar Index® subsequently closed the day at 103.86 with a gain of 0.50%. This bullish move was only temporary as the bears returned on the 19th May and the market was unable to reach the prior days high, falling short at 103.94, before it headed lower. U.S. Dollar Index® posted a loss of 1.08% for the day at 102.75 closing below the daily 20 SMA for the first time since March 2022. This was the largest daily loss for the month and the biggest daily fall since 9th March 2022. The bulls returned on the last trading day of the week on 20th May and tried to recover some of the losses made previously however the damage was done and there was too much ground to recover. U.S. Dollar Index® closed up for the day at 103.17 with a gain of 0.22%.
Overall, the U.S. Dollar Index® closed the week with a loss of 1.41% putting an end to the consecutive weekly higher closes seen over the past six weeks to record the largest weekly drop since early February 2022.
This bearish momentum continued into the following week and as trading opened on the 23rd May the U.S. Dollar Index® was unable to gain any positive ground. The market again fell heavily throughout the day to record a loss of 0.90% and closed at 102.10 after testing the lower boundary of the daily Bollinger Bands. The U.S. Dollar Index® continued to fall during trading on the 24th May and although the Bollinger Bands provided some support this was not enough and the U.S. Dollar Index® closed below the lower boundary for the first time since 13th January 2022.
Trading on 25th May was more positive as the bulls returned and the U.S. Dollar Index® lifted from the lower banding and started to rally. Even below estimated Durable Goods Orders for April, which published below expectations at 0.4% against 0.6%, did not dampen the market and the U.S. Dollar Index® rose to a high of 102.45 for the day. FOMC minutes came out later in the U.S. session and whilst the information generally was public, the initial reaction saw U.S. Dollar Index® fall although it recovered a short while later. The minutes highlighted the concerns around inflation being near the 40 year highs (although CPI data recorded a slight drop in April) and interest rates would be one of the measures taken to help combat inflation.
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 tool to help plan for the future.
The FOMC minutes also confirmed the 0.5% interest rate hike announced earlier in the month, which was the single biggest increase seen in 22 years and further rate increases are anticipated. The Committee will also be going ahead with the reduction in the Federal Reserve’s Balance Sheet as planned on 1st June. U.S. Dollar Index® closed the day with a gain of 0.31% at 102.08.
On 26th May, the bears returned and the U.S. Dollar Index® closed down with a loss of 0.24% at 101.86, the negative sentiment was exacerbated as GDP data published showed a negative rate as a preliminary indication for Quarter 1. This disappointing news was below the prior announcement of -1.4% and expectations of -1.3%. Trading on 27th May was mixed and the U.S. Dollar Index® closed marginally down for the day at 101.70 with a loss of 0.05%.
Overall, the U.S. Dollar Index® ended the week with a loss of 1.28% at 101.70. This is the second consecutive weekly drop and the largest drop over a two-week period seen since July 2020.
Monday 30th was Memorial Day in the US and although there were, no major announcements the U.S. Dollar Index® traded to close down for the third consecutive day at 101.30 recording a loss of 0.36%.
On the final day of trading, the U.S. Dollar Index® found some support and the bulls helped to lift price from the lows to close the day up at 101.77 a gain 0.34%.
After a bearish turn mid-May, the uptrend that the U.S. Dollar Index® had been trading in broke on the daily timeframe with potentially a new downtrend beginning to form. The U.S. Dollar Index® in the weekly timeframe remained in an uptrend.
The U.S. Dollar Index® closed the month of May at 101.77 with a loss of 1.41% the largest monthly loss since April 2021.