The US Dollar has continued to experience downward pressure today, following a decline during the New York trading session subsequent to the Federal Open Market Committee’s decision to increase its target rate by 25 basis points, resulting in a range of 5-5.25%, on the previous day.
It seems that the source of weakness is linked to the belief that the Federal Reserve will no longer increase interest rates, as the market is currently reflecting a decrease in rates during the third quarter.
Despite Fed Chair Jerome Powell’s reassurance that each meeting in the future will depend on data and require ongoing assessment, there remains a sense of uncertainty.
During the March meeting, the Committee stated that further policy firming may be deemed necessary. They also listed several factors that will be taken into account when making decisions.
The May meeting statement was modified to read, “When assessing the degree to which supplementary policy tightening is warranted.”
The anticipation of a recession in the market is leading to expectations of a forthcoming easing of monetary policies. However, if inflation continues to remain significantly higher than the Federal Reserve’s target of 2% in the event of a slowdown, this could pose a significant challenge for the US economy.
The FOMC meeting had negative consequences on the US Dollar, as evidenced by the decline in Treasury yields. The most significant depreciation was observed relative to the safe-haven currencies of Switzerland and Japan.
The USD/CHF currency pair reached a 15-month low of approximately 0.8800, coinciding with the DXY (USD) index remaining at near 2-year lows.
The Australian Dollar and New Zealand Dollar have strengthened in response to favorable economic indicators. In March, New Zealand experienced a 7% increase in building permits. Additionally, Australia’s trade surplus reached AUD 15.27 billion during the same month, marking the second-highest reading ever recorded.
The cash session on Wall Street concluded with a decline, however, futures indicate a stable beginning for today’s trading. In the Asia Pacific region, equity indices are displaying a mixture of results. Chinese markets have opened for the first time this week, while Japan remains closed.
During the commencement of the Asian trading session, crude oil experienced a significant decline in value, while gold demonstrated a substantial increase in value. Subsequently, both commodities have returned to levels approximating their initial values.
The WTI crude experienced a decline, reaching a 17-month low of US$ 63.34 per barrel, reflecting a decrease of over 7% from the New York closing price. Meanwhile, the front month COMEX gold futures contract achieved a near-record high but did not surpass its previous peak, trading at 2,085.4 per ounce.
DXY(USD) INDEX TECHNICAL ANALYSIS
The DXY index exhibits a descending trend channel and resides beneath all daily simple moving averages (SMA) across all periods. These observations may imply the emergence of a bearish momentum.
Potential support levels for the currency pair include past lows of 100.82, 100.79, 99.57, and 99.42. Conversely, resistance may be encountered at previous peaks of 102.40, 102.81, and 103.06, particularly at the latter level due to its proximity to the 55- and 100-day SMAs which could act as barriers to upward movement.