Dollar Falls on Dovish Powell Comments
The US Dollar is back in the spotlight following dovish comments from Fed chairman Powell on Friday. With traders now pricing in a higher likelihood of quicker/deeper Fed rate cuts from the expected start point next month, USD has moved sharply lower. The key question now is, given the move lower we’ve seen in USD over the last month, does USD have further to go near-term or is some correction likely?
USD Bears Need Fresh Ammo
Expectations of a dovish shift from the Fed have seen DXY falling around 5% from the YTD highs. With inflation falling steadily again and the jobs market trending lower, traders had begun pricing in at least two cuts from the Fed this year beginning in September. Powell’s confirmation of these expectations on Friday now raises the bar in terms of achieving further USD downside whereby bears will need to see fresh bearish catalysts in order to drive USD meaningfully lower.
September Easing Level in Focus
Looking ahead, the Fed is widely expected to cut rates by .25% next month, though pricing for a larger .5% cut is growing. In light of this, if the Fed cuts by the smaller amount, this might fuel some disappointment among bears, limiting the downside reaction we see. On the other hand a larger cut might fuel a fresh leg lower. Key to this will be incoming inflation and employment data ahead of that meeting. Further weakness in these readings should prime dovish expectations, sending USD lower near-term. Any uptick, however, will likely dilute these expectations, fuelling some short-covering in USD.
Technical Views
DXY
The weekly chart shows the scale of the current sell-off. Price is hovering just above the psychological $100 mark for now. Below, the 2023 lows at 99.67 will be the next major support level to watch. To the topside, bulls need to get back above 102.46 to alleviate near-term bearishness.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.