DXY Whipsaws as Fed’s Powell Stays Evasive

US DOLLAR UNDER PRESSURE WITH FOMC STILL VIEWING INFLATION AS TRANSITORY

• The US Greenback pivoted decrease on Wednesday with the broader DXY Index dropping -0.25%
• US Greenback value motion weakened as Fed Chair Powell caught to his accommodative stance
• The FOMC nonetheless sees substantial progress on jobs a methods off and inflation as transitory

The US Greenback whipsawed on Wednesday as preliminary power shortly become weak spot across the Fed. FOMC officers unanimously left coverage unchanged as anticipated, however up to date language within the press assertion acknowledged how the economic system is making progress towards the central financial institution’s most employment and value stability objectives.

This brought about a knee-jerk response by US Greenback bulls as this appeared to present a nod to the edge for tapering asset purchases. Upon scrutinizing precise verbiage within the assertion, nevertheless, markets found the important thing “substantial” qualifier was unnoticed. That fueled US Greenback bears to fade the rally with promoting stress accelerating after Fed Chair Powell expounded on this messaging.

FED CHAIR POWELL SAYS WE ARE A WAYS AWAY FROM SUBSTANTIAL PROGRESS ON JOBS

Particularly, Fed Chair Powell famous how the labor market nonetheless has a methods to go earlier than reaching substantial additional progress. Powell added that whereas situations have improved and demand is robust, the unemployment fee continues to understate the diploma of joblessness. The Federal Reserve head additionally echoed how the central financial institution nonetheless sees inflation as transitory and long-term inflation expectations in step with its purpose.

Powell additionally talked about that whereas successive waves of COVID-19 are having diminishing affect on the economic system, it’s believable that buyers may pull again on exercise as a result of fears surrounding the delta variant. This all appeared to strike a dovish tone and supply justification for the Fed to remain patiently accommodative as officers debate the scope and timing of tapering. As such, upcoming releases of employment knowledge and the annual Jackson Gap symposium stand out as key threat occasions for markets.

DXY INDEX – US DOLLAR PRICE CHART: DAILY TIME FRAME (17 FEB TO 28 JULY 2021)

Chart by @RichDvorakFX created utilizing TradingView

Shifting focus to a technical perspective, it seems just like the US Greenback might be primed to give up current good points. That is contemplating how the broader DXY Index simply closed beneath ascending trendline help and the 23.6% Fibonacci retracement degree of its newest bullish leg. Likewise, adverse divergence seen on the relative power index and accelerating downward momentum as recommended by the MACD each function constructive developments for US Greenback bears. Continued US Greenback weak spot may see the DXY Index lengthen its slide towards the 50-day easy shifting common.

— Written by Wealthy Dvorak, Analyst for DailyFX.com

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