After some post FOMC volatility, Dollar bears took over the markets overwhelmingly and sent the greenback sharply lower. The key takeaway was that while Fed Chair Jerome Powell indicated a pause after overnight’s rate cut to 1.50-1.75%, he was non-committal. There was a brief lift to Dollar as he said “monetary policy is in a good place”, and it would take a “material reassessment” of the outlook for considering another rate cut again.
However, Powell did stick to script that current stance of monetary policy is likely to “remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook.” It’s also mentioned in the statement the timing of future adjustments will be based on “realized and expected economic condition”, taking in to account “a wide range of information” including domestic job and inflation data, as well ass international developments. That is, Fed is maintaining a highly data-dependent approach, without closing the door for further cuts.
Trade development is something that Fed will closely monitor. Powell said “We have that Phase One potential agreement with China which, if signed and put into effect, could have the effect of reducing trade tensions and reducing uncertainty. That would bode well for business confidence and perhaps activity over time.” If the economy was to experience “a sustained reduction in trade tensions, a broad reduction in trade tensions, and a resolution of these uncertainties, that would bode well for business sentiment.
Dollar index’s decline overnight raises the chance of rejection below 55 day EMA (now at 98.13). Focus would be back on 97.14 low immediately. Break will resume the fall from 99.66. If that happens, DXY cold also finally take out 55 wee EMA decisively too. that would be a rather bearish medium term development that should send the index back to 95.84 support at least.
