The Dollar Moves Higher, But …

Rate Cut Hopes Fade

The Dollar Index is moving higher as hopes for a Fed rate cut fade. The reason is simple, the NFP report was much stronger than expected and suggest the US economy hasn’t weakened too much. Global activity is slowing, US activity has too, the catch is that market expectation got ahead of itself as usual, a hiccup in activity earlier this year was not the signal of recession. Now, hopes for substantial FOMC rate cuts have themselves been cut in half, expectations for a single cut this month remain at 100% but the odds for a second are near 0%.

What does this mean for the dollar? The Dollar Index bounced off of a support level last week and looks like it will be moving higher. The catch here is that there are still resistance targets in the near vicinity that could keep the index from moving higher. If the US central bank is going to be less dovish than expected the ECB, BOE, and BOJ may be too, eh? Let’s wait and see some data.

Further, the FOMC Minutes are also due this week and that is where the real risk lie. The market expects the Fed to have turned slightly dovish, the question is how dovish, and the minutes might answer it. At this time resistance is $97.50, a move above there may be bullish, the risk is resistance at $98.00. It’s possible the DXY will remain within the long-term range as the market adjusts to a new set of expectations. The next FOMC meeting is in about three weeks and there is some key data between then and now. This week CPI and PPI might top the list.

The EUR/USD appears to be moving lower under a strong downdraft. The pair has fallen below the short-term moving average and a key support level with strong momentum. A move down to 1.1150 or lower should be expected, more than that depends on the minutes and the FOMC, and the ECB too. The ECB is about to deliver some stimulus and a new President, possibly Christine Lagarde, will be in office next year so there is going to be some turbulence and volatility no matter what else happens.

The GBP/USD is moving lower to but may have hit bottom. The pair is testing support at 1.2500 where it is also setting a new long-term low. This low, if confirmed as support, could lead to a reversal in the Pound. If not, if support at this level is broken, a new downtrend could easily form.