USD Analysis and Talking Points
- Fed Shift Sparks Unwind of Fed-Induced USD Strength
- USD Eyes Powell and Clarida Speech
- US Government Shutdown Adds to USD Selling
Fed Shift Sparks Unwind of Fed-Induced USD Strength
Yesterday, comments from Fed’s Bostic provided a reminder that a shift in Fed action is underway with the central bank beginning to take a wait-and-see approach and assess incoming data before going ahead with rate hikes. Consequently, this signals Fed flexibility with regard to rate hikes, which may lead to a pause in Q1. As such, the unwind of Fed-induced USD strength has taken place with the index breaking out of its recent range to the downside, which in turn could see the USD continue to correct lower in the short term.
USD Eyes Powell and Clarida Speech
Market attention will be focused primarily on the plethora of Fed speakers scheduled later today. Interest will largely centre around comments from Fed Chair Powell and Vice Chair Clarida. What had been apparent last week from Powell in his panel discussion was that the Fed could be patient with regard to rate hikes, while also potentially altering the current balance sheet policy if it had been a factor in rising market volatility.
US Government Shutdown Adds to USD Selling
Aside from monetary policy, the current government shutdown in the US has also kept the US Dollar on the backfoot. Given that there are little signs of a breakthrough in talks between President Trump and the Democrats, fears will begin to creep in that Q1 growth could see a notably weaker reading. As a reminder, in 2013, a government shutdown that lasted 16 days had shed 0.6ppts off GDP. The current government shutdown has lasted for 19 days.
USD Price Chart: Daily Time Frame (Feb 2018 – Jan 2019)
Having broken out of the rising channel, USD bears are now eyeing a test of October 16th low situated at 9430 before a move towards the September lows (9335.)
USD TRADING RESOURCES:
- US Dollar: What Every Trader Needs to Know
- Just getting started? See our beginners’ guide for FX traders
- Having trouble with your strategy? Here’s the #1 mistake that traders make
--- Written by Justin McQueen, Market Analyst
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