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Dollar Reclaims Throne as Fed Rate Cut Bets Fade, Powell in Focus

By:
Lukman Otunuga
Updated: Jul 10, 2019, 12:07 UTC

King Dollar was handed a chance to reclaim its throne in the FX space following last Friday’s US jobs report which threw a monkey wrench in Fed cut expectations.

Dollar Reclaims Throne as Fed Rate Cut Bets Fade, Powell in Focus

The Dollar’s impressive appreciation continues to highlight how the currency remains sensitive to rate cut speculation and this will most likely stand as a major theme for the rest of 2019. All eyes will be on Fed Chair Jerome Powell who is due to testify to Congress later in the day. Should Powell sound less dovish than expected or fail to offer fresh clues on rate cut timings, the Dollar has the potential to appreciate across the board. Although there is some element of uncertainty over what the Fed will do this month, the central bank may move ahead with an insurance rate cut to please investors. What happens beyond July will be influenced by economic data from the United States and US-China trade developments. Any signs of the Fed holding back on rate cuts in H2 will be positive for the US Dollar but bad news for emerging market currencies.

Focusing on the technical picture, the Dollar Index has the potential to test 97.80 and 98.00 in the short to medium term.

Euro shows resilience by rebounding from 1.1200

The Euro’s resilience against the Dollar and other G10 currencies is impressive given how economic conditions in the Europe area remains nothing to celebrate about.

Euro bulls have held their ground despite rising expectations for more aggressive ECB easing following the nomination of IMF Chairwoman Christine Largarde as the new European Central Bank head. With the EURUSD rebounding from $1.12, buyers are likely to exploit this bounce to send the currency pair towards $1.13 in the near term. A breakout above $1.13 invalidates the bearish setup and invites bulls back into the game.

The Australian Dollar has depreciated against every single G10 currency thanks to disappointing domestic data from Australia and a broadly appreciating Dollar.

Buying sentiment towards the Australian Dollar is set to deteriorate further given how the Reserve Bank of Australia has cut interest rates to a historic low of 1%. Technical traders will continue to closely monitor how prices behave below 0.6950. Sustained weakness below this level is likely to open a path towards 0.6900 and 0.6980, respectively.

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About the Author

Lukman Otunuga is a research analyst at FXTM. A keen follower of macroeconomic events, with a strong professional and academic background in finance, Lukman is well versed in the various factors affecting the currency and commodity markets.

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