Diminishing Greenback Strength Ahead of Powell Testimony
Published on: 07/19/18 2:30 PM
US Dollar Loses Last Weeks Luster Moving Forward
Last week on Thursday the June CPI headline number came in at 2.9%, which aided the US dollar to test the 95.00 level on the DXY. Higher inflation is likely to mean higher interest rates and increasing interest rates are normally associated with increasing strength in a currency. With the Fed’s inflation target of 2% being hit for ten straight months, it is highly anticipated that the Fed will maintain their hawkish stance and raise interest rates two more times this year. The greenback had shown strength from the trade war talks and the inflation news. However, as the week ended, the US dollar began pulling back and could not remain above 95.00. It dropped back to support levels between 94.20 and 94.30.
Powell Monetary Policy Report
Regarding the US dollar traders should pay attention to the events Federal Reserve Chairman Jerome Powell. He will give his Monetary Policy Report and speak to the Senate Finance Committee on Tuesday and the House Financial Services Committee on Wednesday. These proceedings are open for representatives of Congress to question the Fed Chairman and Powell must answer these questions in a manner that will not cause too much volatility in the financial markets. Market reversals have been associated with these Monetary Policy reports to Congress and traders should be vigilant to how the market will react to this testimony. After the Fed raised rates in December 2015 for the first time in seven years, the equity market began 2016 with an unbelievably horrible sell-off. It was the testimony of former Fed Chair Janet Yellen who helped to calm the markets. After her testimony the stock market continued to climb, even well after the US Presidential election.
How will the US Dollar fare in Q3?
The third quarter has not been the most impressive for US dollar as the second quarter was. The trade war fears and the higher inflation numbers enabled the dollar to test the 95.00 level. However, this level seems to be a key resistance level that the greenback was unable to break on Friday. With the US dollar in retreat mode, traders must identify key levels of support. There are some key levels of support from 94.20 to 94.30 that traders should pay attention to. The June swing=low is around 93.30 and may present short term bullish reversal in the US dollar.