- Despite the Fed raising its target rate, the value of the US dollar has continued to decline.
- The 25-point increase to 5.25%-5.25 % seems to have increased recession worries.
- Where does that leave the DXY index if the market believes the Fed is tightening?
After yesterday’s 25-basis-point increase in the Federal Open Market Committee’s (FOMC) target rate to 5-5.25%, the US dollar continued to fall into the New York close today.
The market for interest rates has priced in a decrease in rates for the third quarter, which seems to have been a major contributor to the slump.
However, Fed Chair Jerome Powell has assured the public that future meetings would be data reliant and call for continuous evaluation.
At its March meeting, the Committee said, “The Committee anticipates that some additional policy firming may be appropriate,” and went on to list considerations that would go into reaching a final judgement.
This section was reworded during the May meeting to read: “In determining the extent to which additional policy firming may be appropriate.”
The market appears to be pricing in an imminent loosening of monetary policy in preparation for a potential economic slowdown. The US economy might be in for some rough sailing if the downturn plays out as predicted and inflation remains well over the Fed’s 2% objective.
Treasury rates fell as a result of the FOMC meeting, which was a blow to the value of the US dollar. The Swiss franc and the Japanese yen were hit the hardest because of their reputation as safe-haven currencies.
The USD/CHF exchange rate dropped to a 15-month low under 0.8800, while the DXY (USD) index is stuck near 2-year lows.
Both the Australian Dollar and the New Zealand Dollar are stronger as a result of recent positive economic statistics. In March, construction permits in New Zealand increased by 7 percent monthly. Australia’s trade surplus for the month of March was a record-breaking AUD 15.27 billion.
While the cash session on Wall Street ended in the red, today’s futures indicate a more stable opening. Equity indexes in Asia and the Pacific are mixed as Chinese markets open for the first day this week but Japan’s financial centres remain closed.
Crude oil started the Asian morning crashing down, while gold opened the session roaring higher. Both markets are currently trading close to where they were when they opened.
More than 7% lower than the New York closing, WTI oil struck a 17-month low at US$ 63.34 barrel. Front month gold futures on the COMEX nearly hit an all-time high, reaching 2,085.4 per ounce at their peak.
TECHNICAL ANALYSIS OF THE DXY (USD) INDEX
There may be developing bearish momentum if the DXY index stays within a downward trend channel and under all period daily simple moving averages (SMA).
The lows of 100.82, 100.79, 99.57, and 99.42 could provide support. Resistance at former highs of 102.40, 102.81, and 103.06 is possible on the upside. The latter is close to the 55 and 100 day simple moving averages (SMAs), which might act as resistance.
