USD Price Outlook: More Gains Possible Ahead of Fed Meeting

USD price, news and analysis:

• Bullish factors are beginning to build up for USD.
• They include a growing belief that the Federal Open Market Committee will cut US rates by a quarter of a percentage point rather than by half a point this month.

USD Price Outlook Bullish

The rate-setting Federal Open Market Committee is now looking likely to cut US interest rates by 25 basis points rather than 50bps when it meets on July 30-31, and that is likely to keep the US Dollar on its upward trajectory near-term.

Market pricing is currently suggesting a 97.5% probability that the FOMC will reduce its target range to 2.0%-2.25% from the current 2.25%-2.50%. The chances of a reduction to 1.75%-2.0% are therefore a mere 2.5%, with almost nobody expecting the Fed to leave its target rate unchanged.

The impact can bee see on the EURUSD chart below, which shows the pair in a steep downward channel.

EURUSD Price Chart, Daily Timeframe (January 15 – July 9, 2019)

Chart by IG (You can click on it for a larger image)

Other factors supporting the USD are a relaunch of the US-China trade talks this week and news last week of a higher than expected increase in US non-farm payrolls in June, suggesting that the US economy is performing better than feared.

However, there is a wild card: Federal Reserve Chair Jerome Powell will this week give his semi-annual testimony to Congress, appearing before a House panel Wednesday and a Senate committee Thursday. Clearly, if his testimony is more dovish than expected, talk of a 50bps cut in rates will grow and the USD would likely ease back in response.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex