USD Continues To Rise Pushed By Monetary Policy Expectations

Sep 30 21, 10:25 GMT

The USD continued to strengthen against a number of its counterparts yesterday, pushed higher by market expectations for a tightening of the Fed’s monetary policy, while higher than expected pending home sales for August may have also contributed. It should be noted that in ECB’s banking forum Fed Chairman Powell characterised inflation as frustrating and expressed worries for a possible conflict between jobs and inflation and that should be the chief challenge facing the Fed. As the USD continued to strengthen gold prices were forced to retreat given also that US yields tended to remain at rather high levels. On the other hand, US stockmarkets tended to show little volatility with some mixed signals being provided by the markets. Today we highlight the release of the final US GDP rate for Q2 as well as the weekly initial jobless claims figure, while a high number of Fed policymakers are scheduled to speak and could sway the market’s mood.

The USD index continued to rise breaking the 94.10 (S1) resistance line, now turned to support. We tend to maintain a bullish outlook for the index which corrected a bit lower during today’s Asian session. The RSI indicator below our 4-hour chart is clearly above the reading of 70 confirming the bulls’ dominance yet that may imply that a correction lower could be in the cards for the index as it may be overbought. Please note that the index is currently is at levels not seen since last November. Should the bulls actually continue to guide the index we may see it breaking the 94.60 (R1) resistance line and aim for the 95.00 (R2) level. Should the bears take over, we may see the index breaking below the 94.10 (S1) support line and aim if not breach the 93.70 (S2) support level.

EUR continues to weaken

The common currency retreated against the USD and JPY yet remained rather stable against the weakening GBP yesterday. It should be noted that ECB President Lagarde had remained rather dovish in the past days as she stated that the bank will not overreact to inflationary pressures in the Zone, thus allowing for a more accommodative monetary policy to remain present. The statements differentiated ECB’s monetary policy outlook from other central banks such as the Fed and the BoE, which are expected to keep a close eye on inflation and are expected to start tightening their monetary policies earlier. Today we highlight the release of Germany’s and France’s preliminary HICP rates for September which are expected to accelerate and if so, could underscore the inflationary pressures in the Area, thus adding pressure on the ECB and could be providing some support for the EUR.

EUR/USD retreated further yesterday breaking the 1.1615 (R1) support line, now turned to resistance. We tend to maintain a bearish sentiment for the EUR/USD given that the pairs’ RSI indicator below our 4-hour chart is below the reading of 30, albeit that may also be signalling that the pair is oversold and a correction higher could be performed. Should the selling interest be extended we may see the pair aim if not break the 1.1520 (S1) support line, while should a correction higher take place we may see EUR/USD breaking the 1.1615 (R1) line, paving the way for the 1.1695 (R2) level.

Other economic highlights today and the following Asian session:

Today during the European session, we note UK’s GDP rates for Q2, UK’s Nationwide house prices for September, Frances’ and Germany’s preliminary HICP rates for September, Switzerland’s KOF indicator for September and Turkey’s Trade Balance for August. In the American session, we get from the Czech Republic CNB’s interest rate decision and from the US the final GDP rate for Q2 and the weekly initial jobless claims figure, while a number of Fed policymakers is scheduled to speak. During tomorrow’s Asian session we note the release of Japan’s Tankan indicators for Q3.

USD index H4 Chart