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US Dollar Index News: DXY Direction Controlled by Fed Guidance, Powell Remarks

By:
James Hyerczyk
Updated: Sep 20, 2023, 13:39 GMT+00:00

The U.S. dollar (DXY) signals market unease as traders await the Federal Reserve's pivotal rate decision and Chairman Powell's remarks.

US Dollar Index

Highlights

  • U.S. Dollar (DXY) slides 0.2% ahead of Federal Reserve’s critical rate decision.
  • Market watches with bated breath: Consensus expects Fed to hold rates between 5.25%-5.50%.
  • Chairman Powell’s commentary poised to give pivotal signals on the central bank’s stance.

Federal Reserve and its Influence on the Dollar

The U.S. dollar (DXY) , reflecting trader anticipation, witnessed a modest decline of 0.2%, while trading at 105.02 against a basket of major currencies on Wednesday. This movement can be attributed to the market’s focus on the Federal Reserve’s forthcoming rate decision. The central bank’s moves, both current and anticipated, play a pivotal role in shaping the trajectory of the dollar.

While the consensus tilts towards the Federal Reserve maintaining rates between 5.25% and 5.50%, traders and analysts are more intrigued by the forward guidance the bank might offer. Any insights or remarks from Chairman Powell will be closely monitored, as they can offer crucial clues about the central bank’s direction. The futures market currently indicates a 30-35% chance of a rate hike in the November-December window.

Sterling Reacts to Inflation Surprises

While the U.S. dollar wrestles with the Federal Reserve’s potential decisions, sterling finds itself grappling with unexpected inflation data. The pound dropped to a four-month low at $1.2363 after data revealed a slowdown in UK’s August inflation.

Predictions had been set for the Consumer Price Index (CPI) to rise to 7.0% from July’s 6.8%, but it unexpectedly dropped to 6.7%. This deviation has raised questions about the Bank of England’s upcoming rate decisions. In just a day, the market odds of a rate hold by the BoE shifted dramatically from a mere 20% to nearly 50%.

The Yen Amidst Intervention Talks

Parallel to the dollar’s movements, the yen held its ground against the dollar at 147.89. Discussions about potential interventions in the currency between the U.S. and Japan have garnered attention. Masato Kanda, Japan’s top financial diplomat, emphasized the continued vigilance of Japanese authorities over currency movements.

Brief on Other Key Currencies

In Asia, China’s offshore yuan experienced a slight dip of 0.1% to 7.3110 per dollar after a decision to retain its lending rates. Over in Europe, the euro experienced minor upward momentum, trading near $1.0697.

Short-Term Market Outlook

For now, the dollar’s immediate future seems largely linked to the Federal Reserve’s pronouncements. As the market braces for the central bank’s decisions, a mix of caution and anticipation can be felt across trading arenas throughout the world.

Look for heightened volatility today with the possibility of several changes in direction. One will be fueled by the Fed’s initial statement. The second by future inflation and rate predictions. The third will be fueled by Fed Chair Jerome Powell, who could single-handedly move the U.S. Dollar in two directions with his comments.

Technical Analysis

4-Hour US Dollar Index (DXY)

The current 4-hour price of 104.968 is slightly below its previous 4-hour price of 104.994, indicating marginal weakness in the short term. The price is well above the 200-4H moving average of 103.896 but teetering just above the 50-4H moving average of 104.959, suggesting a possible cross-over point. The 14-4H RSI is at 44.75, showing weakened momentum, coming down from being overbought.

Considering the main support area ranges from 103.273 to 103.013, the index remains above this zone. On the upside, resistance lies between 105.095 to 105.883, which the price has recently challenged. Given these observations, the current market sentiment appears to be cautiously bullish, but on the verge of neutrality or a potential acceleration to the downside on a clean break of the 50-4H moving average at 104.959.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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