USD Remains Soft With Eyes Fixed On Inflation, Fed

Nov 09 21, 09:30 GMT

The USD tended to weaken against its counterparts yesterday as the market’s attention now turns to inflation and the Fed’s stance after the strong employment data released for October on Friday. It’s characteristic that Fed Vice Chair Clarida acknowledged that inflation is running at considerably high levels and that it’s “much more than a moderate overshoot” of the bank’s 2% target. The Fed’s Vice Chairman left the question on when the bank is to hike rates unanswered but stated that “I do believe that these three conditions for raising the target range of the funds rate will have been met by year-end 2022”. We expect market focus today to turn to the US PPI rates for October while also we have a number of Fed officials which are scheduled to speak, among them in a pre-recorded message Fed Chair Jerome Powell.

The USD index dropped yesterday breaking the 94.10 (R1) support line, now turned to resistance. We maintain bearish outlook for the greenback as long as the index remains below the downward trendline which is forming since the 5th of November when it hit a 13 month high. It should be noted that the RSI indicator below our 4-hour chart is aiming for the reading of 30 with a clear downward slope, implying a bearish sentiment for the index. Please note though that the index’s price action could bounce on the lower Bollinger band which is nearing as the index drops. Should the selling interest for the USD be maintained we may see the index breaking the 93.70 (S1) support line and aim for the 93.20 (S2) level. Should on the other hand, buyers take the initiative, we may see the index reversing course breaking the prementioned downward trendline, the 94.10 (R1) resistance line and take aim for the 94.60 (R2) level.

US stockmarkets gained as infrastructure plan provides a boost

US stockmarkets tended to be in the greens yesterday supported also by companies engaged with the construction sector as well as commodities. It should be noted that the indexes got a boost by the possibility of the signing of the US$1 trillion infrastructure deal that the House has passed and is now at President Biden for signing. The bill provides funding for roads, highways, alongside electric vehicles, clean energy, and high-speed broadband. Please note that currently another fiscal support package is being discussed at the US Congress and possible headlines for its passing could provide further support for stockmarkets and vice versa.

On second note the dovishness of the Fed seems also to be supporting the US stockmarkets, while a possible rise of the US yields could threaten a further upward motion.

Dow Jones continued to rise testing the 36490 (R1) resistance line yesterday before retreating lower. On a technical level, we maintain a bullish outlook for the index as long as its price action remains above the upward trendline incepted since the 13th of October. It should be noted that the RSI indicator remains above the reading of 50, implying a bullish sentiment, yet seems to correct a bit lower. The picture seems to be similar also with the Bollinger bands as the price action has retreated from the upper level. Should the bulls actually maintain control over the index, we may see it breaking the 36480 (R1) which marks a record high level for the index and if so is to enter uncharted waters. As the next possible target for the index to the upside, we have set the 36800 (R2) level. Should the bears say enough is enough and take over, we may see the index reversing course and breaking the 36210 (S1) line while even lower we note the 35900 (S2) level.

Today’s events and expectations

Today in the European session we get from Germany the ZEW indicators for November, in the American session we get from the US the PPI rates for October and later oil traders may be interested in the API weekly crude oil inventories figure while in the Asian session we get China’s inflation metrics for October. As for monetary events among a number of speakers, we note Fed Chairman Jerome Powell, ECB President Christine Lagarde and BoC governor Tiff Macklem early tomorrow.

USD Index H4 Chart