U.S Dollar Powers Up On Fed’s Status Quo

After Powell’s nomination for a second four-year term was announced by President Biden, the dollar touched a 16-month high against the euro on Monday, and the euro was also hurt by an increase in COVID-19-related cases in the region.

At the time of writing this report, DXY bulls were hovering above 96.5 index points.

According to the White House, Lael Brainard, a member of the Federal Reserve Board, will be vice-chair.

The reelection of Powell suggests a less dovish monetary policy outlook than one under Brainard

With Powell remaining as the Fed Chair, it appears that there is greater scope for rate hikes, and the dollar has benefited from that.

Holders of long positions from lower levels may wish to use the June slope as a means of determining when/where to trail stops up.

It might be a good idea to wait until the DXY tests support (96) or at least consolidate above it for a few days before entering.

Based on the view outlined above, bearish bets aren’t appealing at this time given that support and trend aren’t favorable at this time.

To generate some selling interest, hard breakthrough support and a failure on a rally would be needed. It will still take some time to turn the trend bearish even then because the trend is still steadily higher.

In consequence, precious metals should suffer in the coming months as the USD Index takes the lead.

A short-term drop to 95 is not ruled out as the USD Index approaches overbought territory.

However, it’s more of a possibility than a foregone conclusion. It is likely that a short-term pullback will be a correction within a medium-term uptrend, and the greenback’s medium-term outlook remains robust.

Minutes of the Fed’s November 2-3 meeting will be released on Wednesday, which will be analyzed for any new signs that the Fed is becoming more concerned about persistently high inflation.

Despite a quickening economic recovery and raging inflation, Federal Reserve officials Richard Clarida and Christopher Waller suggested accelerating stimulus tapering.