DXY Analysis For The Week Of April 7th, 2025After a very bearish week and a strong bullish reaction to end it, I would expect some premium points of interest to get filled before another aggressive move down.
SDX1! trade ideas
Dollar Index Analysis Follow-UpIn this video, I revisit the analysis I sent out to traders at the beginning of the week, discussing the higher probability price action of the dollar index.
Bears give the USD a break, EUR/USD pullback may not be overThe retracement higher for the US dollar is finally underway, which also shows further upside potential. And this is why I am wary of being long EUR/USD over the foreseeable future, even if I suspect it is poised to break to new highs in the coming weeks.
Matt Simpson, Market Analyst at City Index and Forex.com
Dx for 3.17.25lets see what happens this upcoming week. would like sell-side hit then bullish correction
The Dollar's Demise May Not Be Over Just YetThe US dollar index is on track for its worst week in nearly two and a half years. It is also nearly 6% off from the January high, which is similar in depth to the two previous selloffs seen in 2023 and 2024. Yet I do not think we've seen the low just yet, even if there is evidence of a potential bounce on the daily chart.
Matt Simpson, Market Analyst at City Index and Forex.com
3.3.25 pre-week analysisMy thoughts on the upcoming week:
Not going to be the cleanest trading conditions. Dx hit an important level so need some more candles. Ultimate looking for some type of bearish retrace. Will need to make a decision about direction once that happens, but if Dx goes bearish:
1 Oil and Gold longs look interesting
2 GU longs after hitting the sell side lows would be nice to see
3 Indexes should rally ES and Dow look like better buys.
U.S. Dollar Index (DXY) The U.S. Dollar Index (DXY) has exhibited a 1% increase over the past three trading sessions. However, the index remains structurally weak unless it successfully breaches the 108 resistance level. Conversely, the key support level is positioned at 105.615. Due to trump tariffs policy, Fed annouancement.
USD lower, yields whacked on renewed Fed-cut betsEven as recently as two weeks ago, the thought of fed cuts were in the distant past. Yet a slew of weak data from the US since Friday including two consumer sentiment reports and a surprise PMI miss has seen markets reconsider a 25bp Fed cut in June. Today I cover bond yields, the US dollar index and futures exposure to update my dollar outlook.
Matt Simpson, Market Analyst at City Index and Forex.com
DXY! 2025 Proyection of WeaknessThe DXY is showing a weakness signals.
If the price close above of 107 pts Sell
DXY fut. US Dollar possible weakening.
DXH25. There signs of weakness, but this support zone from 106.5 can consolidate pa and stop the US dollar descent. Measured move is a suggestion, in case it gets through.
Institutions Pull Back Their Funds From The FedDisclaimer : 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.
ICEUS:DXY ICEUS:DX1!
4 Scenarios for Anticipating The Fed's PolicyBased on prevailing economic conditions and financial pressures
Scenario #1 | The Fed’s Policy and Its Implications
High Inflation Persists & Bank Liquidity Declines
Conditions:
Bank Credit grows slowly, while Deposits grow at a slower pace than Borrowings.
Cash Assets decline significantly, indicating a reduction in liquidity within the banking system.
Interbank lending rates rise, tightening funding among banks.
Inflation remains high, but economic growth slows.
Possible Fed Policy Responses:
Maintain high interest rates or increase further to curb inflation.
Reduce bond holdings through Quantitative Tightening (QT) to absorb liquidity from the financial system.
Open emergency lending facilities for banks to prevent panic in financial markets.
Impacts:
USD may strengthen as higher interest rates make dollar-denominated assets more attractive to global investors.
Increased pressure on banks, especially those heavily reliant on short-term funding.
Stock markets may experience a correction, particularly in interest rate-sensitive sectors such as technology and real estate.
Scenario #2 | Recession Starts to Surface & Credit Tightens
Conditions:
Bank Credit stagnates or turns negative, indicating that banks are restricting credit due to concerns about default risks.
Deposits stagnate, as investors prefer alternative assets such as bonds or gold.
Stock markets begin showing bearish pressure due to economic uncertainty.
Possible Fed Policy Responses:
Gradually lower interest rates to stimulate borrowing and investment.
End Quantitative Tightening (QT) and restart Quantitative Easing (QE) to inject liquidity into the markets.
Adjust bank reserve requirements to allow more flexibility in lending.
Impacts:
USD may weaken as lower interest rates reduce the attractiveness of dollar-denominated assets.
U.S. government bonds will become more attractive, causing bond yields to decline further.
Stock prices may rise, particularly in sectors that benefit from lower interest rates, such as technology and real estate.
Scenario #3 | Liquidity Crisis in the Banking System
Conditions:
Sharp declines in Cash Assets, causing some banks to struggle to meet short-term obligations.
Deposits exit the banking system, as public confidence in banks decreases.
Federal Funds Rate spikes, making interbank borrowing more difficult.
Possible Fed Policy Responses:
Provide emergency lending facilities for banks facing liquidity shortages, as seen during the 2008 and 2023 financial crises.
Lower interest rates in an emergency move if liquidity pressures worsen to maintain financial stability.
Collaborate with the FDIC to guarantee deposits and prevent bank runs.
Impacts:
Financial markets may experience high volatility, with potential panic selling in banking stocks.
Investors will flock to safe-haven assets such as gold and U.S. government bonds, causing their prices to surge.
Confidence in the USD may temporarily weaken, especially if the Fed injects large amounts of liquidity into the system.
Scenario #4 | Soft Landing - Stable Economy & Fed Policy Adjustments
Conditions:
Inflation is under control, and the economy continues to grow positively.
Bank Credit grows steadily, and bank liquidity remains adequate.
Stock markets remain calm, with no signs of panic in financial markets.
Possible Fed Policy Responses:
Keep interest rates stable for an extended period, with no drastic changes.
End Quantitative Tightening (QT), but avoid immediately restarting QE.
Collaborate with financial regulators to maintain banking system stability without major interventions.
Impacts:
USD remains stable, as no major monetary policy changes occur.
Lending rates remain in a moderate range, supporting investment and consumption growth.
Stock markets may gradually recover, particularly in sectors benefiting from stable monetary policies.
Anticipating The Fed’s Policy!
If liquidity declines and inflation remains high → The Fed is likely to maintain high interest rates & tighten monetary policy.
If a recession starts to emerge → The Fed may lower interest rates & ease monetary policy to support credit and investment.
If a liquidity crisis occurs → The Fed may bail out banks, lower interest rates, and stabilize the financial system.
If the economy remains stable → The Fed may hold interest rates & make only minor adjustments.
Recommendations:
Monitor The Fed’s statements and key economic data (CPI, PCE, NFP, GDP) to anticipate upcoming policy changes.
Analyze market reactions to monetary policy to identify trends in stocks, bonds, and USD.
Use bank liquidity and Borrowings data to assess potential liquidity constraints in the banking system.
If you have additional insights or different perspectives, I’d love to discuss them in the comments!
ICEUS:DX1! ICEUS:DXY CBOE:CBOE NASDAQ:CME TVC:US10Y
A subtle shift in sentiment suggest the USD rally has stalledIt seems everyone bullish the USD, waiting for its inevitable breakout above 110. But a subtle shift of bullish exposure to USD futures suggests the game is changing, and that a breakout may not be assured. Using market positioning from CME futures markets, dollar index and commodity FX charts, I take a closer look.
Matt Simpson, Market Analyst and City Index and Forex.com
MACRO FINANCIAL ANALYSIS | ASSETS & LIABILITIESICEUS:DX1! Financial data analysis from 11 main H.8 tables released on February 7, 2025 covers Assets and Liabilities of various types of banking institutions in the United States. This analysis covers large domestic banks, small domestic banks, and foreign institutions to provide a comprehensive understanding of the dynamics of the financial system.
Methodology
The analysis evaluates the growth of various asset and liability components, including Bank Credit, Deposits, Borrowings, Securities, Cash Assets, and Loans to Commercial Banks, as well as their impact on financial markets and the macroeconomy.
Impact on Financial Markets
Changes in financial markets include:
Stock Market: If bank liquidity declines due to a reduction in Cash Assets and an increase in Borrowings, banking stocks may experience pressure in several ways. First, higher funding costs due to increased Borrowings can reduce bank profit margins, making banking stocks less attractive to investors. Second, if liquidity tightens and banks restrict credit expansion, business sectors dependent on banking finance may slow down, negatively affecting financial sector stock indices and the broader economy. Third, stock market volatility may increase if investors anticipate uncertainty in bank funding strategies, potentially leading to sell-offs in banking stocks and further price declines.
Bond Market: If banks prefer investing in Treasury Securities over issuing loans, demand for government bonds increases, potentially driving bond yields lower. As a result, institutional investors may seek higher-yield alternatives, such as stocks or corporate bonds. Additionally, lower Treasury bond yields may push down long-term interest rates, benefiting the real estate sector and debt-based investments. However, if yields drop too low, banks may face tighter profit margins as lending rates also decline, potentially reducing banking sector profitability.
Forex Market: Tight bank liquidity and changes in interest rates can impact the USD exchange rate against major currencies in several ways. If liquidity declines and interest rates rise, the USD may strengthen due to increased demand for USD-denominated assets, offering higher returns. Conversely, if liquidity pressures lead to instability in the banking sector, global investors may lose confidence in the U.S. economy, weakening the USD. These changes can also increase currency market volatility and affect forex-based investment strategies.
Interbank Money Market: If Loans to Commercial Banks continue to decline, this may indicate reduced interbank confidence or changes in liquidity strategies, affecting short-term interest rate volatility.
Impact of Short-Term Interest Rate Volatility:
Uncertainty in Interbank Lending: If interest rate volatility increases, banks will be more cautious in providing short-term loans to other institutions, which may slow liquidity circulation within the financial system.
Higher Funding Costs for Banks: If volatility rises and interbank interest rates spike suddenly, banks highly exposed to short-term funding could face increased funding costs, potentially reducing their profit margins.
Impact on Credit to the Real Sector: If banks face uncertainty in short-term funding costs, they may adopt tighter lending policies, slowing credit growth to businesses and households.
Regulatory Intervention: If interest rate volatility becomes unmanageable, The Fed or other financial regulators may take measures such as open market operations to stabilize interest rates and maintain money market liquidity.
Impact on the Macroeconomy
Credit Growth and Investment: If Bank Credit grows more slowly, businesses and households may face limited credit access, potentially slowing investment and consumption.
Inflation and Monetary Policy: If liquidity pressures increase, The Fed may need to consider more accommodative monetary policies to prevent excessive credit tightening.
Example Measures:
- Lowering the benchmark interest rate to reduce borrowing costs for banks and businesses.
- Increasing asset purchase programs such as Quantitative Easing (QE) to inject liquidity into the financial system.
- Providing emergency lending facilities to banks under liquidity stress to stabilize money and banking markets.
- Adjusting bank reserve requirements to encourage credit expansion to the real sector.
Systemic Risk: If liquidity shortages in the banking sector persist, they could trigger systemic risks requiring intervention from regulators such as The Fed, FDIC, or OCC to stabilize financial markets.
Key Findings Summary
1. Trends in Bank Credit & Consumer Loans
✔ Bank Credit is growing moderately across all bank categories, with average growth of +3.2% to +5.5%, indicating stable credit expansion.
✔ Consumer Loans increased by +1.7% to +2.9%, with Credit Card loans rising faster (+5.0%), suggesting increased consumption through credit.
✔ Loans to Nondepository Financial Institutions surged by +8.8%, reflecting high confidence in non-bank financial entities.
✔ Automobile Loans declined by -2.3%, signaling weaker demand for auto financing.
Implication: If this trend continues, it could support consumption but also increase credit default risk.
2. Bank Liquidity & Interbank Lending
✔ Cash Assets declined by -4.8% to -10.4%, indicating potential liquidity constraints in the banking system.
✔ Loans to Commercial Banks dropped by -7.1% to -14.3%, suggesting shifts in interbank liquidity strategies.
✔ Federal Funds Sold & Reverse RPs increased by +3.1% to +7.8%, showing higher short-term liquidity activity.
Risk & Impact:
• Increased liquidity pressures can lead to higher interbank lending rates, raising funding costs for commercial banks.
• If this trend persists, banks heavily reliant on short-term funding may face solvency pressures.
• Worst-case scenario: If liquidity continues to decline and interest rates rise sharply, this could trigger systemic financial risks, prompting intervention by The Fed or other regulators such as FDIC (Federal Deposit Insurance Corporation) to guarantee deposits, OCC (Office of the Comptroller of the Currency) to enforce credit restrictions, or even the U.S. Treasury Department providing bailouts to distressed banks to maintain financial stability.
Possibility: Banks should strengthen liquidity management by extending funding maturities and reducing reliance on short-term money markets.
3. Deposits, Borrowings, and Bank Funding Strategies
✔ Deposits grew by +2.0% to +6.7%, reflecting continued confidence in the banking system.
✔ Large Time Deposits grew at a slower pace (+0.9% to +2.9%), indicating investors are seeking higher-yield alternatives.
✔ Borrowings increased by +6.7% to +7.3%, suggesting rising funding needs amid tighter liquidity.
Risk & Impact:
• Higher Borrowings can increase bank leverage, raising liquidity risk if short-term funding dries up.
• If Deposits grow slower than Borrowings, this could indicate early signs of reliance on external funding, potentially increasing funding costs and lowering profitability.
• Worst-case scenario: If this persists, some banks may need to aggressively raise deposit rates, tightening their profit margins further.
Possibility: Banks should diversify funding sources and implement risk management strategies to mitigate overreliance on external borrowing.
Some Possible Strategies That Will Be Carried Out By Various Roles
1. Regulator & Policy Maker Steps
✔ Monitor Borrowings and Deposits trends to determine whether monetary policy needs to be adjusted.
✔ Ensure there is a balance between credit expansion and liquidity stability to keep the financial system healthy.
✔ Evaluate the decline in interbank lending, which could be a sign of systemic risk in the banking sector.
2. Investor & Market Player Steps
✔ Surely will use bank securities holdings and cash positions data to identify investment opportunities.
✔ They will pay attention to Borrowings levels and deposit rates, as these can affect the profitability of the banking sector.
✔ And will monitor bank equity as an indicator of financial stability before making investment decisions.
3. Financial Institutions & Banks Steps
✔ Likely to revise funding and liquidity strategies to avoid excessive dependence on Borrowings.
✔ Or adjust the structure of loans and investments, taking into account changes in credit demand and preferences for Treasury Securities.
✔ Pay attention to leverage risk and credit risk management, especially in the face of economic uncertainty.
Key Points & Next Steps
✅ Both domestic and foreign banks continue to grow steadily, but liquidity pressures are increasing, requiring careful management.
✅ Investment in government securities is increasing, signaling a shift from credit issuance to safer assets.
✅ Customer confidence remains high, but slower deposit growth and increased lending could pose challenges going forward.
✅ Monetary policy and regulatory strategy will be closely monitored to maintain financial stability.
Possible Future Steps:
• Track liquidity trends and credit expansion to anticipate sectoral shifts.
• Monitor the Fed’s monetary policy decisions and their impact on banking and financial markets.
• Evaluate leverage and interbank lending risks as early indicators of potential financial instability.
DXY Feb 2025All currencies appearing in this post are fictitious.
Any resemblance to real currencies, existing or dead, is purely coincidental.
USD Index. DXY (futures)
Interesting multiple rsi divergence accompanied with yesterday's harami candlesticks pattern in DXH.
Dollar in reversal zone
Max probability reversal zone reached.
Weekly double top.
Probable end of wC of B, reached 100% target.
IF DX starts showing weakness, we are in a good Risk/Reward position for riding a possible wave 3 or C to the downside next year.
The first target for this wave 3 or C would be $100 support, then the HVN around $95, then the wave 3 or extended C targets.
Why we're on guard for a USD pullbackStrong economic data for the US alongside expectations for the Fed to significantly reduce the pace of their easing cycle has been a main driver for USD bulls. And while the dollar could reach new high with the current backdrop, we're about to enter a phase of the year which greatly favours USD bears. Looking at monthly and daily seasonality patterns in December and forward returns for the USD around Fed meetings, I outline why a pullback - even idf only minor - could be due for the mighty greenback.
MS
Dollar Index Alert: Reversal Pattern Emerging – Learn MoreLuckily, I spotted a classic reversal pattern right on the edge of triggering.
The combination of three peaks, with the tallest in the middle, has formed a Head & Shoulders chart pattern on the Dollar Index futures daily chart.
The right shoulder is almost complete, and the bearish trigger will be activated if the price breaks below the Neckline (the line connecting the valleys of the Head), which sits under 105.30.
The target is calculated by subtracting the height of the Head from the Neckline breakdown point, giving us a target around 103.10.
The RSI indicator is also on the edge. Watch for a breakdown here as additional confirmation.
Who knows, we'll get back in!After breaking first attempt, which I called as temporary correction. (see previous post)
We tried to get back in there once, didn't happen.
Maybe we go in second time again.
