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USD Forecast: Fed Speakers Stoking Volatility While DXY Consolidates

U.S. DOLLAR ANALYSIS & TALKING POINTS

  • Fed speakers show differing viewpoints creating an uncertain environment for the USD.
  • 200-day SMA in focus but unlikely to be pierced.

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USD FUNDAMENTAL BACKDROP

The Dollar Index (DXY) has been trading in a sideways consolidatory pattern of recent after its downward correction. Of late, variations have been fueled by mostly Fed speakers including yesterday’s hawkish Bullard. Comments around increasing the peak rate in 2023 from 5% (current market pricing as seen in the table below) through to 5.25% to quell inflationary pressures.

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FEDERAL RESERVE INTEREST RATE PROBABILITIES

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Source: Refinitiv

From a euro perspective (57.6% weighting within the DXY), ECB President Christine Lagarde delivered a speech earlier today focusing on fighting inflation within the eurozone by means of interest rate hikes which are likely to continue despite recessionary risks. Markets naturally reacted in favor of the euro however, the Fed’s Collins will be in focus later today (see economic calendar below) who previously favored moderated rate hikes going forward. It will be interesting to see whether she persists with this view or shows agreement with the St. Louis President.

ECONOMIC CALENDAR

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Source: DailyFX economic calendar

TECHNICAL ANALYSIS

U.S. DOLLAR INDEX DAILY CHART

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Chart prepared by Warren Venketas, IG

Daily DXY price action is hovering above the 105.00 psychological handle coinciding with the key 200-day SMA (blue). On the daily chart, the DXY has now breached this area of confluence since June of 2021. Considering the current fundamental environment in the U.S. and eurozone, I remain in favor of an elevated DXY however, dollar appreciation may only become present once other constituent currencies within the DXY become fundamentally weaker relative to the U.S.. The Relative Strength Index (RSI) suggests the market is close to oversold territory which may point to subsequent relief for the greenback.

Resistance levels:

  • 110.00
  • 107.68

Support levels:

  • 105.00/200-day SMA

Contact and followWarrenon Twitter:@WVenketas

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