Talking Points
- The US Dollar (via the DXY Index) has fallen to its lowest level since October 17, 2018 as traders continue to adjust positioning following last weekâs speech by Fed Chair Powell.
- While Fed Chair Powellâs speech rendered the December FOMC meeting minutes stale, his upcoming remarks at the Washington Economic Club could prove significant for the US Dollar.
- Retail traders are buying the dip in the greenback, fading advances by EUR/USD and GBP/USD.
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The brief pause in the US Dollarâs downtrend (via the DXY Index) proved to be just that â a brief pause â as selling ultimately recaptured tradersâ imaginations yesterday following a lackluster release of the December FOMC meeting minutes. The reaction (or lack thereof) was not necessarily a surprise, given that Fed Chair Jerome Powellâs speech on Friday, January 4 at the AEAâs Annual Meeting, where he reset rate expectations just weeks after the FOMC updated its Summary of Economic Projections in mid-December.
FOMC Minutes were a Dud, Attention on Powell Speech
Fed Chair Powellâs message on Friday was clear: additional tightening steps, be it rate hikes or balance sheet runoff, wonât materialize as quickly as previously anticipated. The central bank chief noted that the central bank was listening âcarefully and sensitivelyâ to the âmarketâs risk concernsâ and it could âshift the processâ of balance sheet normalization if necessary, as there was "no preset path for policy.â Curiously, the minutes revealed a tone similar to Fed Chair Powellâs; it seems as if either 1) Powell did a bad job communicating the Fedâs intentions at the December meeting or 2) the Fed has ex-post facto massaged the minutes to appear more dovish.
Accordingly, with the December FOMC meeting minutes stale having been rendered stale, and in light of another dreadfully thin economic calendar, attention today should be on his upcoming comments at the Washington Economic Club on Thursday. Given the evolution of his comments over the past several months ((paraphrasing) October: ârates a long way from neutralâ; November: âcloser to neutralâ; December: âbalance sheet normalization automaticâ; January: âpolicy not on preset courseâ), confirmation that the Fed has become more sensitive to the âmarketâs risk concernsâ could prove beneficial for global equities and bad for the US Dollar once again.
DXY Index Price Chart: Daily Timeframe (January 2018 to January 2019) (Chart 1)

The inside day on Tuesday proved to be a fruitless attempt at yielding a pause in the recent selling, as we noted yesterday that âholding at support does not mean that the attempted breakdown is finished just yet.â Indeed, the DXY Index range breakdown on Wednesday below 95.65 confirms the shift to a more aggressively bearish momentum profile. At present time, the technical structure indicates that further bearish resolution is the most likely near-term outcome.
Having exited the near-three-month range to the downside, the DXY Index is now finding follow-through lower from its break of the April and September 2018 lows. Concurrently, the DXY Index remains below its daily 8-, 13-, and 21-EMA envelope. Likewise, both daily MACD and Slow Stochastics continue to point lower as they trend deeper into bearish territory. A weekly close below 95.65 is still required, but the framework for a top in the US Dollar is in place.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
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