Forex » Analyzing the US Dollar

Forex » Analyzing the US Dollar

Forex » Analyzing the US Dollar

Ahead of the Fed’s moves, the US Dollar has broadly crossed against the Euro this year, but signs that EUR/USD may lose bullish momentum after breaking off yearly highs.

The US dollar and the Federal Reserve in brief

  • A 25 basis point interest rate house is priced in at 90%, with another 25 basis point house in June currently seen as 30% likely.
  • Assuming the Fed proceeds to house participating rates by 25 basis points, attention quickly turns to Fed Chairman Powell’s statement and press conference for clues on June’s decision.
  • The US Dollar has fallen against the Euro in forex so far, but there are signs that the EUR/USD pair could lose its bullish momentum after a failed break to 1-year highs.

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When did the Fed release its rate decision?

The Federal Reserve will release the decision from its monetary policy meeting at 2:00 p.m. ET (6:00 p.m. GMT) on May 3, followed by Fed Chairman Powell’s press conference at 2:30 p.m. ET.

The Fed meets expectations

Using the CME’s FedWatch utility, contract traders at the Fed Funds summit are pricing a 90% chance the central bank will raise interest rates by 25 basis points to the 5.00-5.25 range. %.

Source: WEC FedWatch

Turning a bit further, traders have about a 30% chance the central bank will proceed with another 25 basis point rate house in its mid-June reading, and assuming the Federal Reserve offers With the Augmentation participating in this week’s meeting, any changes to the June odds will be determined whether it is a “warmongering hike” or a “more dovish hike”.

Fed assessment

For Jerome Powell, things are generally going well so far.

Just over a year after the start of the most aggressive interest rate hike cycle in recent memory, the labor market remains relatively strong, with unemployment holding near multi-decade lows in the range average of 3% and the initial hair requirements start with the comb. car.

Meanwhile, inflation continues to moderate relative to central bank targets, with headline CPI below 5% from over 9% last summer and the Fed’s historically preferred Core PCE measure falling. at 4.60% at the time we developed in press. In fact, the Fed has pointed to the more esoteric reading of “Core PCE ex-housing” as particularly important, and as the chart below shows, even this “sticky” measure of inflation tends to fall steadily. :

Forex » Analyzing the US Dollar

It remains to be seen whether the Fed’s aggressive tightening will have further deleterious ripple effects – this weekend’s auction from First Republic Bank to JP Morgan suggests that stress in the banking system remains a major concern – but So far, Jerome Powell and the Federal Reserve may be disappointed with the current macro trend.

In this context, it is not surprising that the Fed has a recent scenario with a new house interest rate of 25 basis points. Assuming the Federal Reserve proceeds with the expected rate hike, the market will quickly turn its attention to the future; Specifically, traders will determine if (or when) the rate hike cycle will end.

On this front, the central bank will likely avoid committing to a specific path ahead of time. As Nick Timiraos, the Wall Street Journal’s “Fed whisperer,” noted, “…[l]It’s responsible, I think their communications regarding future policy actions are as important as individual rate changes… [Ils] They are likely to keep their options open… The policy statement could be the most important and negotiated action taken by officials this week.

As always, Fed Chairman Powell will take the stage 30 minutes after the release of the central bank’s statement to lend color to the decision and some outlook for the future. In recent meetings, Powell’s press conferences have led to even more backlash than the decisions themselves, so readers should be sure to stay tuned throughout. Specifically, traders are looking for information on future interest rate movements, Powell’s level of concern with the banking system, and any hints that the Fed is available to cut the interest rate further. Late this year, it’s possible the president will downplay several times in recent meetings.

Technical analysis of the US dollar » Is the EUR/USD pair reversing?

The US dollar has had a mixed performance in forex so far this year, underperforming its European rivals while generally outperforming major Asian currencies.

As for the most traded currency pair in the world, theEUR/USD hit a new year-to-date (and 1-year) high near 1.1100 last week, but the bulls couldn’t hold onto their hard-earned gains and the pair is now trading below early February highs before 1.1030:

forex euro us dollar may 1 2023
Source: StoneX, TradingView

As shown in the chart above, the EUR/USD poverty price is breaking below its short-term bullish channel and has formed a clear bearish divergence on its daily RSI indicator at recent highs. Thursday’s European Central Bank meeting will no doubt play a big role in the price action of the pair this week, but if the Fed is relatively hawkish (perhaps leaving the door open for another rate hike In June and downplaying worries about the financial system), EUR/USD could see its week kick off accelerating below 1.0900 and potentially on the 100-day moving EMA ahead of 1.0800

On the other hand, a dovish Fed could be the catalyst EUR/USD needs to break 1.1100 permanently for the first time since last March and pave the way for a continuation of the recent uptrend in the forex market. pair.

By Matt Weller, CFA, CMT, » Official Site

Matt Weller is the Global Head of March Studies for and City Index. According to his surveys, Matt uses a fusion of fundamental, technical and sentiment analysis to anticipate potential market movements. His analyzes are regularly published in the Financial Times, Reuters, MarketWatch and the Wall Street Journal. Matt holds both Chartered Financial Analyst (CFA) and Chartered Market Technician (CMT) licenses. stock exchange fomc

Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or solicitation to buy or sell forex cambio contracts or CFDs. Although the information contained in the document comes from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect or consequential damages which may result in a breach.

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