US Dollar Pops after Powell Crashes the Party on September Rate Cut
The US Dollar Index, a measure of the currency’s strength against a basket of foreign currencies, is on the rise, flirting with critical levels that could signal more upside potential. This shift comes amidst a backdrop of significant events that have financial markets buzzing.
At the forefront is Federal Reserve Chairman Jerome Powell’s recent interview. Market participants eagerly anticipated hints of future monetary policy direction, yet Powell’s reticence left many disappointed. Adding to the mix, the former President Donald Trump, in a speech in Milwaukee, declared that Ohio Senator J.D. Vance would be his vice-presidential pick, stirring political waters.
The day’s focus, however, remains squarely on consumer behavior with the impending release of US Retail Sales and Import/Export Prices for June. A look back at the previous month’s Retail Sales data paints a picture of consumer resistance to prolonged high prices, with many opting to postpone purchases in anticipation of relief. A repeat performance for June could spell a downturn for Retail Sales, potentially weakening the US Dollar further.
Amid these developments, the US Dollar Index (DXY) aims to rebound from its recent lows, bolstered by the prospect of escalating trade tensions should Trump reclaim the presidency. Trump’s choice of J.D. Vance, a senator known for his critical stance on China and advocacy for reducing foreign influence on the US economy, hints at the potential for renewed trade wars. Such conflicts have historically benefitted the US Dollar, as evidenced by its rally following tariff impositions on Chinese goods at the beginning of 2018, where it saw a 16% increase over two years amidst trade tensions.
Currently, the DXY navigates below key Simple Moving Averages (SMAs) after last week’s downturn. Its path to recovery involves overcoming several obstacles, starting with the 200-day SMA at 104.37, followed by the 100-day SMA at 104.81, and the 55-day SMA at 105.03, indicating a challenging rally ahead.
On the downside, support hovers around 103.99/104.00, a level under constant surveillance. Every approach to this threshold increases pressure, and if it fails, we could witness diminishing highs until the support eventually collapses. From a technical standpoint, a noteworthy moment would arise if the 55-day SMA were to cross below the 100-day or 200-day SMA, potentially signaling a ‘death cross.’ Such an event is often seen as a precursor to extended bearish trends, marking a critical phase for the US Dollar’s trajectory.
As these dynamics unfold, the interplay between Federal Reserve policy signals, political developments, and consumer data will be pivotal in shaping the future direction of the US Dollar. Each will play a role in determining whether the currency can mount a successful recovery or if it’s poised for further challenges ahead.
