- The US Dollar turns back flat after earlier tech concerns ease.
- US President Trump threatened to slap 50% tariffs on Colombia imports in a deportation spat over the weekend.
- The US Dollar Index (DXY) bounces off 107.00 and heads back to mid-107.00
The US Dollar Index (DXY), which tracks the performance of the US Dollar against six different major currencies, is turning rather flat and is off Monday’s low. Markets got spooked after United States (US) President Donald Trump threatened to slap 50% tariffs on Colombian imports after the country refused to take in deported immigrants from the US during the weekend. Traders now reassess their earlier dovish stance on tariffs as it seems clear they will be used more heavily as a leverage tool.
On the economic data front, all eyes are on the US Federal Reserve (Fed) and the European Central Bank (ECB), which will announce their first monetary policy decisions this year on Wednesday and Thursday, respectively. While the ECB is set to deliver another 25 basis points (bps) rate cut, the Fed is expected to keep borrowing costs unchanged. For this Monday, the Chicago Fed National Activity Index for December is the main data point to focus on.
US equities are dipping lower with investors getting concerned on the valuation of AI tech stocks in the US. Deepseek, a Chinese startup launched an open-source AI module which good be a game changer, undercutting Nvidia and ASML for example. Tech stocks dip throughout Monday, draging the Nasdaq lower, with Nvidea lower by 13%, erasing half a trillion USD in market value.
Daily digest market movers: All headlines
- The Chicago Fed National Activity Index for December jumpts to 0.15, comring from -0.12, which is revised to -0.01.
- New Home Sales data for December wa a big beat of expectations to 0.698 million homes, beating the 0.67 million units estimate and above the previous 0.664 million from November.
- The US Treasury will have its work cut out for this Monday with two auction moments due:
- at 16:30 GMT, short-term 3-month and 6-month bills will be allocated.
- At 18:00 GMT, medium-term 2-year and 5-year notes are due for auction.
- Equities are off their lows with the Nasdaq still down by 2.47%, after a 4% plunge earlier.
- The CME FedWatch tool projects a 43.8% chance that interest rates will remain unchanged at current levels in the May meeting, suggesting a rate cut that month. Expectations are that the Federal Reserve (Fed) will remain data-dependent with uncertainties that could influence inflation during US President Donald Trump’s term.
- The US 10-year yield is trading around 4.546%, further away from its more-than-one-year high earlier this month at 4.807%.
US Dollar Index Technical Analysis: Only big boys will survive
The US Dollar Index (DXY) is overpassed in this Monday’s bid for a safe haven. Instead, investors are picking up more US bonds and the Japanese Yen (JPY). The latter is currently rallying over 1% against the US Dollar, weighting on the DXY as it accounts for 13.6% of weight. Expect volatile moves in the DXY by Wednesday during the Fed decision announcement.
There is a long road to recovery. First, the psychological level of 108.00 must be recovered. From there, 109.29 (July 14, 2022, high and rising trendline) is next to pare back last week’s losses. Further up, the next upside level to hit before advancing further remains at 110.79 (September 7, 2022, high).
On the downside, the convergence of the high of October 3, 2023, and the 55-day Simple Moving Average (SMA) around 107.56 should act as a double safety feature to support the DXY price. For now, that looks to be holding, though the Relative Strength Index (RSI) still has some room for the downside. Hence, rather look for 106.52 or even 105.89 as better levels for US Dollar bulls to engage and trigger a reversal.
US Dollar Index: Daily Chart
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
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