Despite Being Surrounded by an Abundance of ‘Dirty Laundry’ – The USD has Potential to Emerge as the Cleanest ‘Shirt in the Basket’Tensions are running high across the pond as the highly anticipated Fed rate cuts loom over what has already been a testing time for the USD.
The Greenback recently experienced an oscillation of value riding on a two year high, which then saw a significant drop just 24/hours later. Bullish efforts then saw a rise in value before flat-lining earlier this month. The unpredictability of the USD has left traders feeling uneasy and the future of the USD value uncertain for the foreseeable future.
There are only a few days to go until Fed Chairman Jerome Powell is set to commence proceedings in Wednesday’s meeting, by announcing the start of monetary easing in the US with the first of several rate cuts. He is expected to outline that rates will be cut between July and September, followed potentially by a further two 0.25% rate cuts this year. Powell has been cited as saying he is ‘closely monitoring’ economic conditions, leaving the central bank maximum opportunity to slash rates in an attempt to improve long-term market conditions and the global economy.
As the Fed policy U-Turn approaches a further drop in value for the USD was expected, however an unpredicted increase has occurred due to the USD counterparts suffering their own weaknesses throughout the first half of June.
The EUR continues to lose value as expectations of a further monetary loosening grow and the Sterling also continues to decrease as the UK awaits the imminent announcement of their new Prime Minister, increasing fears of a No-Deal Brexit. A further factor boosting the USD value, was the release of the robust retail data, which subsequently prompted the Greenback to bounce back and rise increasingly, resulting in control beat analyst estimates being exceeded. The DXY Index made a move from $97.08 to $97.35 following the release of the retail data before easing slightly to $97.27.
The US retail data release has prompted a pullback from the Fed in order to manage expectations as we approach Wednesday, which then prompts the question as to whether the market is currently too aggressively priced and unpredictable for a successful rate cut to take place.
The US Dollar Index (DXY) is gaining strength via the support of a trend-line, which appears at the end of the weekly wedge at the right-hand side of the diagram. The trough of the wedge signifies last week’s low of 96.46, whereas the high rise trend-line increase is relevant to the current moment. It is unclear yet moving forward if this up-steam momentum will continue to build higher, as previous high-rallies of late have run out of momentum after a short success of inclination.
Now all eyes will be eagerly awaiting Wednesday’s announcements, which if disappointing could have an out-sized effect on the financial markets. At the time of writing: the EUR/USD is at $1.12320, the GBP/USD is at $1.25605 and the USD/JPY is $108.653.
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