Outlook in US dollars:
- the U.S. dollar Follow-ups after hardcore comments from Federal Open Market Committee Chairman of the Central Banking Forum in Sintra
- Powell says more tightening is coming and the vast majority of Fed officials are in favor of raising interest rates twice this year
- This article looks at the key technical levels for DXY to watch in the coming days and weeks
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Most read: European Central Bank Forum on Central Banking Briefing: Federal Reserve, European Central Bank, Bank of England, Bank of Japan
The US dollar, according to the DXY index, rebounded on Wednesday after a poor performance earlier in the week, buoyed by hawkish comments by the Federal Reserve chairman at a forum in Sintra, Portugal. In early afternoon trading, the dollar gauge rose about 0.5% to 103.00 and was on track for its best close since June 13th.
At a central banking panel hosted by the European Central Bank, FOMC Chairman Powell said the current policy stance may not be restrictive enough and more tightening is on the horizon, noting that the vast majority of Fed officials support two rate hikes. two more this year.
Powell’s warning did not end there. He also admitted that he does not expect core inflation to reach 2.0% until 2025. Although he has not said so explicitly, his verbal cue rates could remain high for an extended period of time as part of the ongoing efforts to restore price stability. This could mean no cuts in 2024.
Related: USD/JPY, EUR/JPY head higher as talk of yen intervention fails to stop slide
Despite Powell’s optimistic message, many traders remain skeptical about plans for further hikes, arguing that the US economy will not be able to withstand a tougher political stance. For more clarity about the outlook, it is necessary to monitor the major macroeconomic reports in the coming days and weeks, such as unemployment claims, PCE inflation, non-farm payrolls, CPI, etc.
If the data from Surprise continues to the upside, doubts about the Fed’s roadmap could fade, causing interest rate expectations to drift in a more hawkish direction, in line with central bank guidance. This could boost the US dollar as the third quarter approaches.
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Technical analysis in US dollars
After the recent bounce, USD (DXY) is steadily approaching the medium term trend line resistance at 103.50. While the bulls may find it difficult to push prices above this technical barrier, a breakout could attract new buyers into the market, paving the way for a move towards 104.70, near the May swing highs.
On the other hand, if sellers regain control of the market and trigger a decline, initial support extends from 102.20 to 101.81, followed by 100.80 near 2023 lows. With further weakness, we could see a drop towards 99.50.