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The US Dollar Index (DXY) is currently trading around 106.70. The US Dollar Index (DXY) is currently trading around 106.70. On the 4-hour chart, DXY is testing a resistance TVC:DXY zone near 107.00–107.13, which aligns with the 61.8% Fibonacci retracement of a prior move. If this level is breached, the next target could be 107.50 or higher, signaling a continuation of the uptrend. However, failure to break above this resistance could result in a pullback, with support seen at 106.10, followed by the 105.63–105.78 range. In summary, DXY is at a critical juncture. A breakout above its resistance would likely fuel further bullish momentum, while a rejection may see it revert to lower support levels.
TVC:DXYShort
by TRADE_CENTER_1
What Is Quantitative Tightening and How Does It Work?What Is Quantitative Tightening and How Does It Work in Financial Markets? Quantitative tightening (QT) is a critical tool central banks use to control inflation by reducing the money supply. In this article, we’ll break down how QT works, its impact on financial markets, and how it influences the broader economy. Read on to learn more about the effects of QT and how it shapes markets. What Is Quantitative Tightening? Quantitative tightening (QT) is a type of tightening monetary policy that central banks use to reduce the amount of money circulating in the economy. When central banks like the USA’s Federal Reserve or European Central Bank engage in QT, they aim to tighten liquidity by reducing their balance sheets, typically by allowing bonds or other financial assets to mature without reinvestment or selling them outright. QT is a practice often used alongside hiking central bank interest rates, though not always. The main goal of QT is to manage inflation by increasing borrowing costs and reducing demand for goods and services. By letting bonds mature or selling them, central banks effectively pull money out of circulation. This leads to fewer funds available for lending, which raises interest rates. Higher rates make borrowing more expensive, encouraging businesses and consumers to cut back on spending, which can help cool down inflation. An example of this mechanism in action is the Fed’s QT program that began in 2022 to tackle high inflation by reducing the size of its balance sheet after years of quantitative easing. QT is essentially the opposite of quantitative easing (QE), which is aimed at stimulating economic growth. What Is Quantitative Easing? QT and QE are both used to correct the economy’s course. However, while QT refers to the tightening of monetary policy, QE loosens it. During QE, central banks buy large quantities of government bonds and other assets to inject liquidity into the economy. This increases the money supply, lowers interest rates, and is intended to stimulate economic activity, particularly during downturns or recessions. QE was used extensively following the 2008 financial crisis and during the COVID-19 pandemic as a way to support economic recovery.​ How Does Quantitative Tightening Work? Quantitative tightening works by pulling liquidity out of the financial system, reducing the amount of money available for borrowing and investment. Central banks use a couple of specific methods to achieve this, which have a ripple effect on markets and the broader economy. 1. Reducing Asset Holdings One of the most common ways central banks implement QT is by allowing bonds and other financial assets on their balance sheets to mature without reinvesting the proceeds. For example, the Federal Reserve might hold trillions in government bonds. When those bonds mature, instead of using the proceeds to buy new bonds, the Fed simply lets the money flow out of circulation. This reduces the central bank’s balance sheet and shrinks the money supply, contributing to higher borrowing costs. 2. Selling Bonds Another method central banks use is the outright sale of government bonds or other securities. By selling assets, central banks increase the supply of bonds in the market. This can push bond prices down and drive yields higher, which makes borrowing more expensive for companies, governments, and individuals alike. Rising bond yields often lead to higher interest rates across the board, from mortgages to business loans—when there’s less money available for lending, banks raise the rates they charge for loans. Effects of Quantitative Tightening on the Broader Economy Quantitative tightening has significant ripple effects across the broader economy. As central banks reduce liquidity, it impacts everything from borrowing costs to consumer spending and business investment. 1. Higher Borrowing Costs One of the most immediate effects of QT is the rise in interest rates. As central banks shrink their balance sheets, bond prices fall, pushing yields higher. This, in turn, raises the cost of borrowing for businesses and consumers. There may also be interest rate hikes alongside QT, further tightening lending conditions. Mortgages, personal loans, and corporate debt all become more expensive, discouraging borrowing. For businesses, higher financing costs can limit expansion plans, reducing investment in growth or innovation. Households, meanwhile, face elevated mortgage rates, leading to reduced demand in housing markets and potentially lower home prices​. 2. Reduced Consumer Spending As the cost of borrowing rises, consumers have less disposable income. Higher interest rates on loans and credit cards mean households spend more on servicing debt and less on goods and services. This can slow down retail sales and reduce overall consumer demand, which is a critical driver of economic growth. Lower consumer spending typically affects sectors like retail, real estate, and manufacturing, which depend on a high volume of transactions​. 3. Slower Business Growth QT also impacts businesses by making it more expensive to access credit. Companies that rely on borrowing to finance operations, new projects, or expansions find it harder to justify taking on debt. With higher interest payments eating into profits, many businesses may delay or scale back investment plans. In addition, small and medium-sized enterprises (SMEs) that depend on bank loans for cash flow are often the hardest hit​. 4. Inflation Control While QT can slow economic activity, its primary goal is to rein in inflation. By reducing the money supply and making credit more expensive, it cools down demand. Lower consumer and business spending can reduce price pressures, helping to stabilise inflation. This was a key objective when the Federal Reserve resumed QT in 2022 to counter post-pandemic inflation​. 5. Potential Economic Slowdown However, if QT is too aggressive, it risks triggering an economic slowdown or even a recession. Tightening financial conditions leads to reduced economic growth, as seen in 2018 when markets reacted negatively to the Federal Reserve’s balance sheet reductions​. How Does Quantitative Tightening Affect Financial Markets? Quantitative tightening can have significant effects across different financial markets. By reducing liquidity, it influences the behaviour of key assets, from bonds to equities, and can reshape market conditions in profound ways. 1. Bond Market QT often leads to higher bond yields. When central banks like the Federal Reserve reduce their bond holdings or stop reinvesting in new ones, the supply of bonds in the market increases. As bond prices drop, yields rise to attract new buyers. This rise in yields means governments and corporations face higher borrowing costs. For instance, during the Federal Reserve’s quantitative tightening efforts in 2018, US Treasury yields rose significantly as more bonds became available in the market​. 2. Stock Market Equity markets often react negatively to QT. As liquidity tightens, the cost of borrowing rises for businesses, which can squeeze corporate profits and reduce their ability to invest or expand. Investors also tend to move away from riskier assets like stocks when bonds offer higher yields, as bonds become more attractive for their safety and improved returns. In 2018, US stocks experienced heightened volatility when the Fed’s quantitative tightening efforts combined with rate hikes led to market corrections​. 3. Foreign Exchange Market QT can also impact currency values. As central banks tighten monetary conditions and raise interest rates, their currencies often strengthen relative to others. This is because higher yields and interest rates attract foreign investment, increasing demand for the currency. For example, when the Fed began QT in 2022, the US dollar strengthened as investors sought better returns on US assets like Treasury bonds​. See how the US dollar strengthening occurred for yourself in FXOpen’s free TickTrader trading platform. 4. Credit Market QT reduces the availability of credit as banks and financial institutions face higher borrowing costs themselves. As liquidity is drained from the system, lenders tighten their credit conditions, making loans more expensive and harder to get. This can slow economic growth as businesses and consumers find it more costly to finance investments or purchases. In effect, QT creates a tighter financial environment by reducing liquidity, pushing up borrowing costs, and shifting investor behaviour across various markets. Each asset class feels the impact in different ways, but the overall effect is a more cautious, less liquid financial system. The Bottom Line Quantitative tightening is a powerful tool central banks use to manage inflation by reducing liquidity and increasing interest rates. While it helps control rising prices, QT can impact borrowing costs, investment, and market stability. Understanding how these mechanisms work is crucial for informed trading. Ready to take advantage of different market conditions? Open an FXOpen account today and start navigating more than 700 financial markets with low-cost, high-speed trading conditions, and four advanced trading platforms. FAQ What Is Quantitative Tightening? The quantitative tightening definition refers to a monetary policy used by central banks to reduce liquidity in the economy. This involves decreasing the central bank’s balance sheet by selling bonds or allowing them to mature without reinvestment. QT is typically aimed at curbing inflation by raising borrowing costs and slowing economic activity​. How Does Quantitative Tightening Work? QT works by reducing the supply of money in the financial system. Central banks achieve this by selling government bonds or letting them mature. As the bonds leave the market, interest rates rise, making borrowing more expensive for businesses and consumers​. How Does Quantitative Tightening Affect the Stock Market? QT can negatively impact stock markets. As interest rates rise and liquidity tightens, borrowing costs for companies increase, which can hurt corporate profits. Investors may shift towards so-called safer assets like bonds, reducing demand for stocks and contributing to market volatility​. What Is the Difference Between QT and QE? Quantitative easing (QE) increases the money supply by buying bonds, while quantitative tightening (QT) reduces liquidity by selling bonds or letting them mature. The main difference between quantitative easing vs tightening is that QE stimulates economic growth, while QT aims to control inflation​. What Does It Mean When the Fed Is Tightening? When the Federal Reserve tightens, it implements policies to reduce money supply and raise interest rates. This helps control inflation by making borrowing more expensive and slowing economic activity​. This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
FXOPEN:DXYEducation
by FXOpen
1
DXY - 4H Dollar Index more FallTechnical Perspective: TVC:DXY experienced two significant bullish legs in October and November on the daily time frame. However, the index started to fall sharply at the end of November, and this bearish momentum remains strong. On the 4H chart, DXY reached a key resistance zone and faced a significant rejection with notable bearish momentum, signaling the continuation of the downtrend. The current movement indicates a high likelihood of further declines, potentially to the bottom of the trading range. Many USD pairs are at critical support or resistance levels, and expected reactions from these zones could amplify downward pressure on the DXY, making it increasingly vulnerable to a substantial fall. Fundamental Perspective: In December 2024, the bearish sentiment surrounding the DXY is driven by key fundamental factors. The Federal Reserve is anticipated to implement another 25 basis point interest rate cut during its December 18 meeting, following earlier cuts in September and November. This dovish policy reflects the Fed’s commitment to supporting economic growth amidst a slightly cooling labor market and growing global uncertainties. Adding to the pressure, inflation data showed a 2.7% year-over-year increase in November, a slight uptick from 2.6% in October. Despite this, the Fed remains focused on easing monetary conditions to mitigate recession risks. Additionally, the recent U.S. presidential election has raised prospects of fiscal policy changes, including proposed tax cuts and potential tariff adjustments, which contribute to market uncertainty and weigh on the dollar. These fundamental shifts align with the bearish technical setup, suggesting that the DXY’s downtrend is likely to persist in the near term. Keep an eye on upcoming Fed announcements and inflation data for further confirmation of this trajectory.
TVC:DXYShort
by Sober_Trading
DXY New York Session Ideas-Before CPIDXY New York Session Ideas Before CPI Price took buy side and is in a premium coming into New York. There is FVG and equal lows to drawl to. I suspect whatever direction CPI runs to could be the lows to then send it higher. That is only based on the session range. I also consider price is in a HFT FVG that it is rebalancing and that this pair is bullish, so they could send it the equal highs. I suspect that it will take out some liquidity and I could frame a trade after the dust settles.
TVC:DXY
by LParnell
What Can You Expect from the US CPI Report?The November US CPI inflation report (Consumer Price Index) will be widely watched today at 1:30 pm GMT. Headline CPI Inflation Forecast to Have Increased in November According to Refinitiv data, headline YY (year-on-year) CPI inflation is expected to have risen to 2.7% from 2.6% in October, marking a second consecutive month of increasing price pressures. YY core CPI inflation, which excludes energy and food components, is forecast to have risen to 3.3%, matching September and October’s reports. On a month-on-month (MM) basis, headline CPI inflation is anticipated to have increased by 0.3% from 0.2% in October, with MM core CPI inflation forecast to have reached 0.3%, similar to October’s report. As most will be aware, the US Federal Reserve (Fed) works with a dual mandate: to promote maximum employment and maintain stable prices. We saw from Friday’s US Employment Situation Report for November that while job growth modestly surpassed expectations (220,000), adding 227,000 jobs, the unemployment rate unexpectedly ticked higher to 4.2% from 4.1% in October. Therefore, we were left with a somewhat mixed bag. Regarding inflation progress, it is no secret that the Fed is expecting some bumps along the road, and that the recent acceleration in recent months is not ideal. However, I do not believe recent data are sufficient to derail the easing cycle at this point. Yet, it has led some Fed officials to underline the possibility of adopting more of a cautious stance at upcoming meetings, and rightly so. The elevated inflation numbers we have seen in previous months will likely lead the Fed to kick off 2025 tentatively. This is particularly true with the election of Donald Trump, which further complicates the inflation outlook. Inflation Remains Above Fed Target Here is where we stand according to October’s overall inflation data, proving ‘sticky’ north of the Fed’s 2.0% inflation target. YY CPI inflation rose to 2.6% from 2.4% in September, YY PPI inflation (Producer Price Index) rose to 2.4% from 1.9%, and YY PCE data (Personal Consumption Expenditures) elbowed to 2.3% from 2.1%. Core YY CPI inflation remained at 3.3%, core PPI inflation rose to 3.1% from 2.9%, and core PCE data rose to 2.8% from 2.7%. So, while inflation has slowed considerably since the pandemic, inflationary pressures show evidence of stubbornness. PCE data, the Fed’s preferred measure of inflation, is holding just north of 2.0%, and core PCE has stalled around the 2.8% mark amid increased consumption, particularly in services. Fed Rate Cut Largely Priced in Next Week For next week’s meeting, I feel the Fed will likely cut rates unless we get hot inflation data today, which would be a catalyst for a USD bid (an in-line print will not change much). Markets are currently assigning an 85% probability that the Fed will pull the trigger again next week and reduce the target on the Fed funds rate by 25 basis points (bps) to 4.25-4.50%. You may recall that the Fed has already cut rates by 75 bps this year, with a 25 bp reduction in November and a 50 bp cut in September. Dollar Outlook Ahead of the Event According to the US Dollar Index, things are looking up for the USD ahead of the CPI release. The monthly chart shows November probed year-to-date highs of 108.07 and likely consumed a large portion of stops above neighbouring highs to pave the way north towards another layer of resistance at 109.33. Adding to the bullish vibe on the monthly scale, the daily chart saw price action trade through the upper boundary of a bullish pennant pattern drawn from the high of 108.07 and low of 106.11. This could technically underpin further buying towards at least 108.07 and, with a bit of oomph, towards monthly resistance from 109.33. Written by FP Markets Market Analyst Aaron Hill
TVC:DXYLong
by FPMarkets
DXY - Long ContextMy main trading principle is that the price always moves from swept liquidity levels to untouched liquidity levels. In particular case we clearly can see the following context: price swept 1D key liquidity level and left untouched level higher. But to take more statistically more probable trades we should wait for some type of lower timeframe confirmation. For me the best way to confirm higher timeframe context is structure. We can notice the red line - break of market structure (sign of strength) on key liquidity level, so there is a higher probability to see price higher at least on opposite level (marked higher). Your success is determined solely by your ability to consistently follow the same principles.
TVC:DXYLong
by Maks_Klimenko
DeGRAM | DXY has reached a resistance levelDXY is above the descending channel and trend lines. The chart formed a harmonic pattern, and after it left the channel, broke the upper trend line and formed a rising top, which broke the descending structure. Now the price is above the 50% retracement level of the bearish momentum. We expect growth after consolidation above the nearest resistance level. ------------------- Share your opinion in the comments and support the idea with like. Thanks for your support!
TVC:DXYLong
by DeGRAM
1
US CPI, WHERE WILL THE DOLLAR GO NEXTTrading Plan BASELINE C urrent Short-Term Sentiment Bias : - The market is currently focused on the upcoming US inflation report and its implications for Federal Reserve policy. - There is an 86% probability priced in for a 25-basis-point rate cut by the Fed later this month⁵. - The dollar index is steady around 106.3, reflecting cautious sentiment ahead of the inflation data. SURPRISE Outcome That Will Surprise the Markets Based on the Baseline: - Lower-than-expected inflation data : This would likely lead to USD selling as markets fully price in the anticipated rate cut. A good trade in this scenario would be GBP/USD longs, leveraging the pound's net long positions and the USD's net short positions. - Higher-than-expected inflation data : This would likely result in USD strength as investors adjust their rate cut expectations. A good trade in this scenario would be EUR/USD sells, based on stronger USD institutional positioning compared to the EUR. BIGGER PICTURE Does This Outcome Change the Larger Macro-Fundamental Bias? - Lower-than-expected inflation : Reinforces the expectation of continued easing by the Fed, aligning with the current macro-fundamental bias of a dovish Fed aiming to support economic growth and achieve its 2% inflation target. - Higher-than-expected inflation : Could shift the macro-fundamental bias towards a more cautious Fed, potentially delaying further rate cuts and maintaining a tighter monetary policy stance to combat persistent inflation⁷⁸. Notes - Macro-fundamental bias: The market expects the Fed to continue easing monetary policy to support economic growth and achieve its inflation target. This expectation is based on the Fed's dual mandate and recent economic indicators. - Short-term sentiment bias: The market is currently focused on the upcoming US inflation report and its potential impact on Fed policy, as well as interest rate decision.
TVC:DXY
by Midas_Macro
2
DXY 1W Forecast until March 2025Consolidation below 106 will last until October 2024. Breakout will happen in October peaking at 111-112 followed by a retest (mid November 2024 - January 2025). Further upward movement + correction will happen in January-March 2025 between the top of 113-114 and the bottom of 105-ish. Consecutive HH and HL will be followed by rapid increase in pace of changes: time will shrink and levels will expand. This will mark the start of hard times of Greatest Depression in March 2025 sending all markets down and making USD the king.
INDEX:DXY
by discarding
DXY 1W Forecast until the end of MAY 2025Up-trend will resume and last until the end of February 2025 topping no higher than 114. Current bottom is in at 105.9 Hence, it shouldn't fall below. After February a consolidation period of 1,5 months will trap price action between the bottom of 122.16 and upper level of 114.9 The spring squeezed during consolidation will provide enough energy for further upwards movement starting in the end of April 2025. This will ignite a chain of devaluation of national currencies followed by epidemic inflation across the globe. This will finish/cool-down at DXY reaching the mark of 148. New reality after May 2025?
INDEX:DXY
by discarding
Dollar Index ahead of US Inflation data releaseThe DXY (US Dollar Index) 4-hour chart presents a mix of technical and fundamental insights: Technical Analysis: Price Pattern: The chart suggests a breakout from a descending wedge, a potential bullish reversal pattern. However, broader bearish signals loom, as noted by a potential head-and-shoulders neckline that, if breached, could trigger intensified selling. Key Levels: Support : Immediate support lies at 105.50, followed by critical levels at 105.00, 104.60, and 104.10. Resistance: The next significant resistance is at 106.70. A sustained break above this level is needed to confirm bullish momentum. Fundamental Factors: Economic Data and Fed Meeting: Traders are in a wait-and-see mode ahead of key US CPI and PPI reports this week. Core CPI is expected to hold steady at 3.3% YoY, potentially influencing the Fed's rate guidance. The Federal Reserve meeting on December 19 is pivotal, with a 90% probability of a 25-bps rate cut to 4.25%-4.50% priced in. Market focus will also be on the dot plot guidance for 2025, which could shape expectations for future rate cuts. Market Sentiment: The current range-bound movement around 106.35 reflects cautious sentiment, with traders balancing between potential bullish technical developments and looming bearish risks from economic data and Fed expectations. Outlook: Bullish Scenario: A break and close above 106.70, supported by favorable economic data, could fuel further upside toward 107.00. Bearish Scenario: A decisive move below 105.50 or the neckline of the bearish pattern could intensify selling pressure, targeting 105.00 and beyond. Traders should closely monitor upcoming CPI and PPI reports, along with Fed guidance, as they could significantly influence the DXY's direction in the short term.
CAPITALCOM:DXY
by ALRDNMRSKY
test 1EUR/JPY maintains its position around 159.50 during Tuesday's Asian session. This upward movement in the EUR/JPY cross is likely due to a weaker Japanese Yen (JPY), driven by uncertain expectations about a potential Bank of Japan (BoJ) rate hike in December. BoJ Governor Kazuo Ueda recently signaled that the timing for the next rate hike is approaching. Combined with data showing strong underlying inflation in Japan, this has increased speculation of a rate hike at the BoJ's policy meeting on December 18-19. However, some media reports suggest the BoJ may opt to skip a rate hike this month. Additionally, dovish BoJ board member Toyoaki Nakamura emphasized the need for caution in raising rates, adding further uncertainty and weighing on the Japanese Yen.
CAPITALCOM:DXYShort
by fairuzfkr