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US Dollar Tanks on Tilting Fed Rate Hike Guidance Ahead of US GDP. Will USD Recover?

US Dollar Tanks on Tilting Fed Rate Hike Guidance Ahead of US GDP. Will USD Recover?

Daniel McCarthy, Strategist

US Dollar, USD, EUR/USD, GBP/USD, USD/JPY, Crude Oil - Talking Points

  • The US Dollar snapped lower after the Fed pulled back on hike guarantees
  • APAC equities were slightly stronger despite massive gains on Wall Street
  • All eyes are on US GDP today. Will a big number lift USD to resume its uptrend?

The US Dollar dived as the market re-adjusted rate hike expectations from the Fed. The anticipated 75- basis point (bp) hike by the Fed led to EUR/USD and GBP/USD getting the largest boosts going into the New York close. The Japanese Yen has been the biggest gainer against the US Dollar in Asia today.

Fed Chair Jerome Powell said in remarks after the decision that the summary of economic projections (SEP) from June were unchanged. He said that the US is not currently in a recession and that future hikes will be data dependent.

He didn’t rule out another 75 bp lift, but the Fed will no longer be giving forward guidance on rate moves.

The perceived deceleration in the rate hike path saw Treasury yields soften out the curve to 10-years, while notes beyond there added a few basis points. Wall Street exploded upward with the Dow, S&P 500 and Nasdaq higher by 1.37%, 2.62% and 4.06% respectively in their cash session. Futures are currently a touch lower.

APAC equity indices are slightly in the green, with Hong Kong’s Hang Seng Index the exception. It is down less than 1%. As expected, the Hong Kong Monetary Authority (HKMA) lifted rates by 75- basis points today to match the Fed hike.

Crude oil went higher on the softer dollar and was buoyed by inventory data. The Energy Information Administration (EIA) reported that holdings in the strategic petroleum reserve fell by 4.5 million barrels. This was a larger decrease than forecast and takes the reserve down to 422 million barrels

Commodities are generally higher across the board through the Asian session. Most notably, iron ore has had a good run, it was up over 5% at one stage. Gold is trading near US$ 1,736 an ounce.

After German CPI today, the focus will be on US GDP figures, where the market is expecting annualized growth of 0.5% in the second quarter. Quarterly PCE data is also due for release and the market is looking for a 4.4% QoQ rise in the three months through June. This is the Fed’s preferred measure of price growth.

The full economic calendar can be viewed here.

USD (DXY) Index Technical Analysis

The USD (DXY) index fell overnight but was unable to move below the 3-week low of 106.11 and this level may provide support. Below there, the break point of 105.59 could provide support.

The 10-day simple moving average (SMA) appears to be about to cross below the 21-day SMA. This would create a Death Cross and it might indicate that bearish momentum could evolve.

On the topside, yesterday’s peak of 107.43 may offer resistance.

USD CHART

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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