Forex Market Analysis: Dollar Gains on Powell’s Hawkish Stance

2024/04/17

Forex Analysis: April 17 2024 US Dollar

CURRENCIES

U.S. Dollar Strengthens: The U.S. dollar saw gains as Fed Chair Powell adopted a hawkish stance. This occurred alongside a rise in U.S. Treasury yields, with the 2-year note nearing the 5.00% level.

Powell’s Hawkish Remarks: Speaking in Washington, Powell noted a slowdown in disinflation and ongoing firm price pressures, introducing uncertainty around the timing of future rate cuts.

Implications for U.S. Dollar: High borrowing costs are likely to persist, which is expected to support the U.S. dollar, particularly as other central banks like the ECB and the Bank of England lean towards easing.

Technical Analysis on FX Pairs: The article next explores the technical setups for EUR/USD, USD/JPY, and GBP/USD, focusing on key support and resistance levels critical for risk management and trading strategy.

EUR/USD Technical Outlook: After a bearish breakdown at 1.0635, EUR/USD may continue to decline, potentially approaching the 2023 low near 1.0450. Conversely, a rebound above 1.0635 could face resistance at 1.0700 and possibly extend to 1.0725. A break above this could lead to a rally towards significant moving averages around 1.0820.

STOCK MARKET

Powell’s Remarks on Inflation: Federal Reserve Chair Jerome Powell noted that it would take longer than previously anticipated for inflation to decrease to the Fed’s 2% target, implying extended high interest rates.

Ongoing Restrictive Policy: Powell highlighted the strong labor market and modest progress on inflation as reasons to maintain restrictive monetary policies for a more extended period to allow further data analysis and guidance.

First Quarter Inflation Data: This period marked Powell’s first acknowledgment that the inflation data from the first quarter did not demonstrate the needed progress to start easing monetary policy.

No Immediate Rate Cuts Expected: Contrary to previous statements, Powell provided no assurances of imminent rate cuts, signalling a cautious stance amid uncertain economic indicators.

Personal Consumption Expenditures (PCE) Data: Powell discussed expectations for the PCE Price Index, noting it likely remained stable from February to March, but still above the target at 2.8% in February.

Inflation and Market Reactions: Recent hotter-than-expected Consumer Price Index (CPI) data led to market instability, with revised expectations pushing back anticipated rate cuts to possibly September.

Strong Economic Indicators: Despite high inflation, other economic indicators like robust job market data and solid retail sales suggest continued economic strength.

Comments from Fed Vice Chair: Fed Vice Chair Philip Jefferson echoed Powell’s sentiment, suggesting that if inflation remains persistent, high rates will be necessary for an extended period.

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