Dollar Bounces on Fed Comments

The US Dollar is seeing some tentative demand today with the DXY seen bouncing of the lows yesterday in response to hawkish Fed comments. Minneapolis Fed president Kashkari said during a Bloomberg interview yesterday that he hadn’t supported a rate cut in October and instead voted for a pause and was currently undecided on which way the Fed should go next month. He said that he is waiting to see how the data plays out on the back of the delay over shutdown. Speaking also, Fed’s Daly noted that she too was undecided over whether to cut again next month saying that it is premature to take a view on it at this stage with so much data to come.

Incoming US Data Risks

With that data due to start coming through from next week there is plenty of volatility risk seen for the Dollar and broader markets as rate cut expectations look set to be heavily driven by the delayed labour market reports of the last two months. The implications for USD look quite clear. If data shows fresh weakness in the labour market, easing expectations should rise firmly, putting fresh pressure on USD as traders brace for a cut. Alternatively, if data holds around prior levels or rises slightly against forecasts, this will likely see traders further scaling back their December easing calls allowing USD to push higher while risk assets come under pressure.

Technical Views

DXY

For now, DXY is holding the 99.15 support level and while this area holds there is the potential for an inverse head and shoulders pattern to play out. The key level to watch is the 100.39 resistance with a break there opening the way for a higher run towards the 101.91 level next. Alternatively, if we slip below the 991.5 level, 98.24 will be the next support to watch.