Pre-Fed DXY

28 de jul.

The DXY touched the bottom of the downward channel last week but it managed to claw its back onto the 200-day MA support at 104.34. The DXY is trading near oversold zones and a retest of the 50-day MA, at 104.89, will likely be its next move. A surprise cut by the Fed will however see the DXY tumble onto the 38.2% support at 103.12 but our base case is for a retest of levels above 105.00.

The markets were hit with two central bank rate cuts last week, the first from the Peoples Bank of China and the second from the Bank of Canada. Both central banks opted for a 25 basis points, like the ECB, and markets are bracing for three more rate decisions for the week ahead. The Bank of Japan is expected to keep rates unchanged at 0.10% and it seems like the BoJ’s currency manipulation strategy is finally bearing some fruit given that the Yen has managed to appreciate almost 5% in the past three weeks against the dollar. Additionally, the Bank of England is expected to cut their rates by 25 basis points. Everyone will however be holding their breaths for the Fed rate decision on Wednesday which is expected to remain unchanged at 5.50% On top of all the rate decision noise the latest non-farm payrolls print for the month of July will also be released on Friday with expectations pointing to a contraction of the US jobs figure.

It is difficult to call the direction on the dollar and global risk sentiment given the busy calendar for the week ahead but the has been on the back foot in the month of July and a Fed pause may just allow the oversold dollar to lift its while other central banks continue to front run the Federal reserve. The macro economic data is suggestive of a resilient US economy after the 2024Q2 US GDP results printed a q-o-q growth rate of 2.8% last week.