Dovish QT Comments
The US Dollar has come under fresh selling pressure today on the back of dovish remarks from Fed chairman Powell yesterday. Powell warned that the Fed is nearing the point where it will stop scaling back the size of its bond purchases. The reduction of bond purchases, known as quantitative tightening, has been an underpinning bullish factor for USD, signalling that the Fed remains in hawkish territory. On the back of the recent rate cut, however, and with further easing expected this year, news of the shift has been taken as a clear dovish signal with USD sold accordingly. Though no clear timing signal was given on when the shift will take place, Powell said that such a move might become appropriate in the coming months.
Powell on Rates
Elaborating on interest rates, Powell warned that the bank has been in a tricky place due to the resilience in inflation data and the strength of the labour market through much of the year. However, Powell explained that since July, the labour market has weakened considerably, bringing the two risks (jobs weakness and inflation strength) closer in line with one another. As such, the Fed is in a position now where its monetary policy approach is becoming clearer. Indeed, Powell noted risks to the jobs market have risen, putting greater pressure on the Fed to ease. On the back of these comments, USD looks vulnerable to further downside this week as traders ramp up easing expectations through year end.
Technical Views
DXY
The rally in DXY off the September lows looks to have stalled for now into the 99.15 level. Price has now turned back inside the broken bear channel and while back under trend line resistance, focus is on a furtehr correction lower. 98.24 will be next support to watch.
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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.