U.S. DOLLAR ANALYSIS & TALKING POINTS
- Which camp is Jerome Powell on?
- Fed speakers to dominate the economic calendar today.
- DXY stuck at key resistance zone.
USD FUNDAMENTAL BACKDROP
The Dollar Index (DXY) has paused amidst its rapid rise of recent as investors move out of US Treasuries as optimism around the US debt ceiling grows. In addition hawkish Fed speak and reinforcement of the tight US labor market yesterday ramped up bets for yet another 25bps interest rate hike in June. Although some officials err on the dovish-side while the Fed’s Logan proposed a pause in June after which the Fed can resume hiking thus keeping the tightening cycle alive – providing a floor for the USD short-term. With money market pricing (see table below) open to a hawkish re-pricing, this is yet another supporting factor for the greenback.
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FEDERAL RESERVE INTEREST RATE PROBABILITIES
Source: Refinitiv
The day ahead is once again highlighted by Fed officials with Fed Chair Jerome Powell the main attraction. Chair Powell is likely to keep the door open for more hikes (data dependent) and remain relatively ambiguous as to not spook the market at this time.
ECONOMIC CALENDAR
Source: DailyFX economic calendar
Foundational Trading Knowledge
Macro Fundamentals
Recommended by Warren Venketas
TECHNICAL ANALYSIS
U.S. DOLLAR INDEX DAILY CHART
Chart prepared by Warren Venketas, IG
Daily DXY price action hovers around a key inflection point at 103.42 (June 2022 swing low); however, with the Relative Strength Index (RSI) approaching overbought territory, we may see short-term upside capped around the 104.00 psychological handle. Moving forward, next week’s FOMC minutes, US GDP, Core PCE (Fed’s preferred measure of inflation), Durable goods orders and Michigan consumer sentiment will drive price action, giving an indication as to the state of the US economy and whether or not there is a need to maintain rate hikes.
Resistance levels:
- 104.00
- 103.42
Support levels:
- 102.81
- 50-day MA (yellow)
- 101.42
- 101.00
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