US Dollar Outlook, Powell Testimony, Fed Monetary Policy – Talking Points
- US Dollar may shrug at CPI after Jerome Powell testimony
- USD may gain on haven demand as coronavirus cases rise
- US Dollar index on path to testing multi-month resistance
Asia-Pacific markets were off to a rough start as S&P 500 futures tumbled along with commodity currencies like the New Zealand and Australian Dollars on coronavirus fears. The Hubei Health Commission – the name of the province marking the epicenter of the breakout – reported that an additional 14,840 new cases were reported after officials revised their diagnostic methods.
S&P 500 Futures, AUD/USD, US 10-Year Treasury Yields, NZD/JPY – Daily Chart
S&P 500 futures chart created using TradingView
HOW WILL CPI IMPACT USD, FED OUTLOOK AFTER POWELL TESTIMONY?
US CPI data on a year-on-year basis excluding food and energy is expected to show a 2.2 percent figure for January, while its month-on-month counterpart is anticipated to print a 0.2 percent statistic. Price growth on an annualized basis continues to clock in above the 2 percent target, but the Fed’s preferred inflation gauge – the Core Personal Consumption Expenditure report – is only hovering at around 1.6 percent.
If CPI underwhelms, it could bring the timeline for Fed easing closer shortly after commentary from his first testimony pushed them back. Having said that, panic about the coronavirus could also inflate rate cut bets if concern about its economic impact continues to swell. However, in the case of market pandemonium, upside pressure from demand for haven-linked assets like USD may overwhelm the downside force of rate cut bets.
At his second congressional testimony – this time in front of the Senate Banking Committee – Mr. Powell expressed concern about the impact of cyber attacks on financial stability. In the case of a downturn, he said the central bank would likely need to restart its bond-purchasing program – known as qualitative easing or “QE” for short – and implementing forward guidance.Click here for a summary of yesterday’s testimony.
US DOLLAR TECHNICAL ANALYSIS
The US Dollar Index (DXY) recently broke through October resistance at 98.98 (white-dotted line) and may head to test another multi-month ceiling at 99.25 (gold-dotted line). If the break is met with follow-through, this opens the door to testing resistance at 99.67. Conversely, if DXY’s upside momentum stalls at 99.67, it could cause a pullback and lead the US Dollar to revisiting the January uptrend.
US Dollar Index – Daily Chart
DXY chart created using TradingView
US DOLLAR TRADING RESOURCES
— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter