Disclaimer: Geopolitical factors are currently a major concern.
This data analysis aims to serve as a fundamental basis derived directly from official sources to assess the USD exchange rate and the likelihood of future monetary policies under normal economic conditions, excluding geopolitical factors that create sentiment different from the actual economic conditions.
H.4.1 Report
FRED
CME FedWatch
Fed Balance Sheet:
Securities Held Outright: Increased by $38 million.
Reverse Repo (RRP): Significantly decreased by $51.875 million in the latest period.
Reserve Balances: Increased by $42.962 million.
TGA Data
Current balance: $809,154 million.
Change this week: Decreased by $8,799 million.
Change from last year: Decreased by $22,726 million significantly.
RRP
A significant decrease in the last 3 days, from $99.65 billion on February 10 to $67.82 billion on February 13, with a total decrease of -$31.83 billion.
M2 Money Supply Data:
M2 value as of December 2024: $21,533.8 billion.
Change from the previous month (Nov 2024): +$85.5 billion.
Change from last year (Dec 2023): +$808.4 billion.
Fed Interest Rate Decision:
Main decision: The Federal Reserve maintained the interest rate in the range of 4.25% - 4.50%.
Bank Reserve Interest Rate: Remains at 4.4%.
Primary Credit Rate: Remains at 4.5%.
The Federal Reserve will continue its Quantitative Tightening (QT) policy by continuing to reduce holdings of Treasury securities and MBS.
Market Expectations from CME FedWatch Tool:
Current target rate: 425-450 bps (4.25% - 4.50%).
Probability for an interest rate of 400-425 bps: 2.5%.
Probability for an interest rate of 425-450 bps: 97.5%.
Based on this analysis
The Federal Reserve has a policy to maintain interest rates stable in the range of 4.25% - 4.50%. Despite the significant decrease in Reverse Repo and the decrease in TGA, as well as the significant increase in M2 Money Supply, this policy is maintained to support economic stability and reduce excess liquidity in the market. The high probability (97.5%) of the market to maintain or increase the interest rate also reflects strong expectations for a conservative monetary policy by the Federal Reserve in the short term.
Impact on USD Overall
Based on the analysis of data from the Fed Balance Sheet, TGA, RRP, M2 Money Supply, and interest rate expectations, USD is likely to remain stable to strengthen in the short term, especially due to the tight monetary policy (Quantitative Tightening/QT) and the high probability of interest rates remaining in the 4.25%-4.50% range.
Components
RRP decreased significantly by -$31.83B in 3 days, liquidity increased, USD may weaken
A decrease in RRP means banks and financial institutions are withdrawing their funds from The Fed and are likely to move into other assets. This increases liquidity in the market, which may weaken the USD due to more dollars circulating, potentially lowering the exchange rate.
M2 Money Supply increased by +$808.4B YoY, liquidity increased, USD may weaken
A significant increase in M2 indicates more money circulating in the economy, which could pressure the purchasing power of the USD. If this growth continues, it resembles a loosening of monetary policy, which could weaken the USD in the long term.
The Fed remains with QT & does not lower interest rates, monetary contraction, USD may strengthen
The QT policy and no interest rate cuts indicate that the Fed still wants to control inflation and maintain tight monetary policy. This could attract investors to USD-based assets (Treasury Yields), keeping the USD strong compared to other currencies.
TGA decreased by -$8.8B weekly, -$22.7B YoY, liquidity increased, USD may weaken
A decrease in TGA balance indicates that the government is withdrawing funds for spending. This means more dollars entering the economy, which could add pressure to weaken the USD in the short term.
You can prepare a trading strategy based on the following scenarios:
Bullish USD if scenario: The Fed maintains QT, does not cut interest rates, and investors continue buying USD-based assets.
Neutral USD if scenario: The Fed maintains interest rates, but RRP & M2 Money Supply continue to rise.
Bearish USD if scenario: RRP continues to decrease drastically, M2 increases significantly, and the Fed starts considering interest rate cuts.
Short Term (1-3 months): USD is likely to remain strong due to tight monetary policy, but if liquidity continues to increase from RRP and M2, weakening could occur in the next quarter.
Long Term (6-12 months): If M2 continues to rise and the Fed changes its policy towards interest rate cuts, USD will gradually weaken.
Focus on market reactions to liquidity data such as RRP and M2.
If RRP drops drastically & M2 rises, USD weakens.
If the Fed maintains QT & high interest rates, USD remains stable.
Pay attention to the next FOMC Meeting & liquidity data (M2 & RRP) for further USD trend confirmation.
Important Note: Treat the above analysis as a fundamental basis in making your trading decisions. It is suitable for swing traders, but for the short term, it is important to consider geopolitical factors.
DXY DX1!
This data analysis aims to serve as a fundamental basis derived directly from official sources to assess the USD exchange rate and the likelihood of future monetary policies under normal economic conditions, excluding geopolitical factors that create sentiment different from the actual economic conditions.
H.4.1 Report
FRED
CME FedWatch
Fed Balance Sheet:
Securities Held Outright: Increased by $38 million.
Reverse Repo (RRP): Significantly decreased by $51.875 million in the latest period.
Reserve Balances: Increased by $42.962 million.
TGA Data
Current balance: $809,154 million.
Change this week: Decreased by $8,799 million.
Change from last year: Decreased by $22,726 million significantly.
RRP
A significant decrease in the last 3 days, from $99.65 billion on February 10 to $67.82 billion on February 13, with a total decrease of -$31.83 billion.
M2 Money Supply Data:
M2 value as of December 2024: $21,533.8 billion.
Change from the previous month (Nov 2024): +$85.5 billion.
Change from last year (Dec 2023): +$808.4 billion.
Fed Interest Rate Decision:
Main decision: The Federal Reserve maintained the interest rate in the range of 4.25% - 4.50%.
Bank Reserve Interest Rate: Remains at 4.4%.
Primary Credit Rate: Remains at 4.5%.
The Federal Reserve will continue its Quantitative Tightening (QT) policy by continuing to reduce holdings of Treasury securities and MBS.
Market Expectations from CME FedWatch Tool:
Current target rate: 425-450 bps (4.25% - 4.50%).
Probability for an interest rate of 400-425 bps: 2.5%.
Probability for an interest rate of 425-450 bps: 97.5%.
Based on this analysis
The Federal Reserve has a policy to maintain interest rates stable in the range of 4.25% - 4.50%. Despite the significant decrease in Reverse Repo and the decrease in TGA, as well as the significant increase in M2 Money Supply, this policy is maintained to support economic stability and reduce excess liquidity in the market. The high probability (97.5%) of the market to maintain or increase the interest rate also reflects strong expectations for a conservative monetary policy by the Federal Reserve in the short term.
Impact on USD Overall
Based on the analysis of data from the Fed Balance Sheet, TGA, RRP, M2 Money Supply, and interest rate expectations, USD is likely to remain stable to strengthen in the short term, especially due to the tight monetary policy (Quantitative Tightening/QT) and the high probability of interest rates remaining in the 4.25%-4.50% range.
Components
RRP decreased significantly by -$31.83B in 3 days, liquidity increased, USD may weaken
A decrease in RRP means banks and financial institutions are withdrawing their funds from The Fed and are likely to move into other assets. This increases liquidity in the market, which may weaken the USD due to more dollars circulating, potentially lowering the exchange rate.
M2 Money Supply increased by +$808.4B YoY, liquidity increased, USD may weaken
A significant increase in M2 indicates more money circulating in the economy, which could pressure the purchasing power of the USD. If this growth continues, it resembles a loosening of monetary policy, which could weaken the USD in the long term.
The Fed remains with QT & does not lower interest rates, monetary contraction, USD may strengthen
The QT policy and no interest rate cuts indicate that the Fed still wants to control inflation and maintain tight monetary policy. This could attract investors to USD-based assets (Treasury Yields), keeping the USD strong compared to other currencies.
TGA decreased by -$8.8B weekly, -$22.7B YoY, liquidity increased, USD may weaken
A decrease in TGA balance indicates that the government is withdrawing funds for spending. This means more dollars entering the economy, which could add pressure to weaken the USD in the short term.
You can prepare a trading strategy based on the following scenarios:
Bullish USD if scenario: The Fed maintains QT, does not cut interest rates, and investors continue buying USD-based assets.
Neutral USD if scenario: The Fed maintains interest rates, but RRP & M2 Money Supply continue to rise.
Bearish USD if scenario: RRP continues to decrease drastically, M2 increases significantly, and the Fed starts considering interest rate cuts.
Short Term (1-3 months): USD is likely to remain strong due to tight monetary policy, but if liquidity continues to increase from RRP and M2, weakening could occur in the next quarter.
Long Term (6-12 months): If M2 continues to rise and the Fed changes its policy towards interest rate cuts, USD will gradually weaken.
Focus on market reactions to liquidity data such as RRP and M2.
If RRP drops drastically & M2 rises, USD weakens.
If the Fed maintains QT & high interest rates, USD remains stable.
Pay attention to the next FOMC Meeting & liquidity data (M2 & RRP) for further USD trend confirmation.
Important Note: Treat the above analysis as a fundamental basis in making your trading decisions. It is suitable for swing traders, but for the short term, it is important to consider geopolitical factors.
DXY DX1!
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.