The US dollar index keeps rounding above the 103.60 historical support level. The buyers have already defended this level for three weeks, highlighting their interest in the greenback. Thus, buying USD looks less risky right now.
USD and S&P: feeding back to Jerome Powell
Generally speaking, Jerome Powell’s announcement was bringing a message of cautious optimism. He recognized that recovery will take some time and that the current situation in the US is far from pushing into the hawkish direction. The interest rate is held steady at 0.25% and will stay there in the nearest future. He also noted that even after a strong period of job creation in the course of recovery there still will be a big chunk of people who wouldn’t get back to work. Hence, getting inflation back above 1.5% will take quite some time. Fed’s Chair made sure to clarify that the Fed is backing up the economy with all the means it has and will be doing so as long as it takes.
The US dollar didn’t lose more value than it would under current trends. Against the JPY, is actually gained recently, although a larger mid-term trend is a decline. Against the EUR, it also slightly gained, while the larger direction during the last week has been sideways.
The S&P, on the other hand, erased the gains of the last week’s rally, getting down to 3,140. We can only say, though, that Jerome Powell’s message merely confirmed the already existing downtrend. May observers commented on it earlier saying that the stock market did a bit too much into the bullish direction last week, and had to cool down. The Fed’s message merely underlined and sealed this layout.
The economy is still in a recovery path. It is obvious and will just take time to complete. From the emotions point of view, all the market has to do is to not get overly optimistic and hopeful about the velocity of this recovery. But fundamentally, it is already around the corner, and proper waiting should bring its fruits.
On the H4 timeframe, the US dollar index has formed a bullish falling wedge. At the beginning of the trading session, the price is testing the upper border of this wedge. Thus, in case of a higher-than-expected Core PCE Price Index m/m, the US dollar will skyrocket against other currencies.
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This week may be the most important since the year started as the Fed assess the economic outlook and the US presents fresh NFP readings.
S&P Global, a private banking company, will release a monthly change in British Flash Manufacturing Purchasing Managers Index (PMI) on January 24, 11:30 GMT+2. The index is a leading indicator of economic health as businesses react quickly to market conditions, and purchasing managers hold the most current and relevant insight into the company's view of the economy.
The United States Bureau of Labor Statistics will publish the US Consumer Price Index (CPI) m/m on January 12 at 15:30 GMT+2. The index measures a change in the price of goods and services purchased by consumers.