The dollar jumped by 0.7% on Wednesday after the US Federal Reserve concluded its two-day monetary policy meeting with major focus on keeping the interest rate near zero until 2023. Here is today’s daily market analysis
The US Central Bank is unrelenting in its effort to support its economy following the Coronavirus hit. After injecting trillions of dollars into the economy, a move that has pressurized the dollar and lifted stock prices, the bank is willing to even do more as the situation requires. In its Wednesday meeting, the last before the November election, the bank announced a steady 0% – 0.25% interest rate range and has decided to maintain a near-zero rate until 2023.
Although economic activities are below the pre-Covid levels, the Fed chair Powell said the recovery has progressed more quickly than generally expected. In addition, the bank maintained its August’s stand to allow the inflation rate to run moderately above its usual 2% target. The dollar index (DXY) gained 0.7% to hit 93.6 as a result, a little below the 93.67 top. However, the bullish momentum has subsided ahead of the Thursday London session.
Daily market analysis: updates on the majors
Euro-dollar fell to the 1.175 support while the Sterling relaxed its current recovery to 1.3 following a deal between the UK government and the ‘rebel’ Conservatives. AUDUSD and NZDUSD also slumped despite a better than expected AUD employment data. Gold fell sharply overnight as Oil recovers quickly. The dollar is thus mounting pressure on its peers again.
Coming later today is the Bank of England monetary policy statement. The market consensus anticipates a steady rate at the current 0.1%. Also, the PhillyFed manufacturing index could add a short-term flow to the dollar while the CAD ADP non-farm employment change is announced at the same time later today.
DXY technical analysis: what next for the dollar?
DXY hit 93.6 but couldn’t breach above the 93.67 intraday level. The index is currently retreating below 93.5 as the dollar’s recovery struggles to build momentum. 91.77 is the base. It’s very doubtful that the current bearish correction will go as deep as challenging it. However, the dollar struggle will most likely continue for the rest of the week unless a sharp rally above 93.67 happens. DXY could therefore retest 93 or drop below it before the bullish run from 91.77 continues to 93.5 and 94.5.
GBPUSD recovers from the Brexit shadow
Last week, the Brexit mess resurfaced. The October 2019 Brexit agreement could be in trouble. The Sterling fell under big pressure as a result. With the dollar gaining ground on the other side, the Pound-dollar fell from over 650 Pips in September to 1.276. However, the UK government has reached an agreement with the opposing conservatives who have been planning on a Brexit amendment. This has given the currency pair a lift to 1.3 with the likelihood for more bullish correction.
Technically, further rally to 1.304, 1.3125 and 1.32 is high on the cards especially if the Bank of England, in its monetary policy meeting on Thursday, keeps the rates steady as the market is expecting and with a hawkish or a non-overly-dovish outlook.
EURUSD completes bearish chart patterns
EURUSD will mirror the direction of the DXY inversely as usual. Technically, the most traded currency pair has completed two reversal patterns at the top after peaking at 1.2. A wedge (an expanding diagonal) pattern is quickly being followed by a ‘head and shoulder’ pattern with neckline at 1.1750. If the momentum slows down today, the Euro-dollar could oscillate between 1.185 and 1.175 before breaking in whichever direction it intends. A breach above 1.19 will see the bearish patterns violated and 1.2 will therefore be tested. On the other hand, if the price stays below 1.19 and preferably around/below 1.185, a break below the 1.175 neckline should lead to more decline to 1.16, 1.15 and even 1.14.
Gold in a triangle range
Gold fell on Wednesday after completing an ending diagonal/wedge pattern at 1975. The commodity continues to struggle as every recovery attempt is met by another beating. The metal is thus evolving into a triangle pattern since it hit 1862 on August 12. The price will most likely remain in the triangle territory with the nearest top at 1975 and nearest low at 1905. A break away from any of these levels will confirm the near-term direction of the yellow metal. The bears seem to have the upper hand and might push toward 1800 once a break below 1905 happens.
(All charts used are from TradingView)
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