DXY Firmly Focused on Fed Rate Announcement

us dollar analysis

• A strong US economy could further increase interest rate hikes in the future.
• The Fed is expected to keep interest rates at current levels.
• A bearish divergence suggests that a short-term dollar weakness will occur.

Fundamental factors of the dollar index

The US dollar has been on a rollercoaster of a week, starting with mixed US CPI data, followed by PPI and retail sales, confirming the solid state of the US economy and hinting at potential inflationary pressures ahead. showed. The message of “high for a long time” remains and is potentially more persistent, but the prospect of next week’s Fed rate announcement will likely result in a pause in rates.

The money market pricing shown below reflects the possibility of another rate hike if necessary (as suggested by Fed speakers), but a sustained high interest rate environment could lead to a stronger dollar. May be maintained. Interestingly, the December 2024 rate cut has been revised downwards by approx. 7bps On Friday~ 81bps Despite the latest Michigan Consumer Confidence Report dropping following recent US economic indicators. Moreover, a weaker euro could offset the dollar’s upside. 57.6% The dollar index (DXY).

Implied Federal Funds Futures

Source: Refinitiv

Next week’s announcement (see economic calendar below) will provide more details on what happens next in terms of guidance on hiking in November or December of this year. I hope Fed Chairman Jerome Powell will send a similar message, reiterating the importance of relying on data while leaving the door open for future rate hikes if necessary. Building permit data will be released in advance of the Fed’s announcement, but should not significantly influence decision-making.

US Economic Calendar (GMT +02:00)

sauce: DailyFX Economic Calendar

technical analysis

US Dollar Index (DXY) Daily Chart

chart creator Warren BenketasI.G.

The price trend in the daily DXY chart above can tell two stories. The first is a bearish/negative divergence, where the price shows a higher high while the Relative Strength Index (RSI) shows a lower high, which often leads to a subsequent downside. Markets perceive the Fed’s guidance to be dovish).

From a bullish perspective, although it is not fully developed yet, if the 50-day moving average (yellow) breaks above the 200-day moving average (blue), there will be an opportunity for a golden cross formation. The probability of further upside is lower than the probability of a subsequent decline towards the support zone.

Resistance level:

Support level:

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