- The U.S. dollar gains strength on volatile Federal Reserve decision.
- The New York Federal Reserve’s Nowcast model predicts solid economic growth in the third and fourth quarters.
- The Fed expects financial conditions to remain loose, which will support the economy.
The US economy is experiencing a moderate slowdown, but indicators suggest that economic activity remains sturdy overall. The Federal Reserve (Fed) has indicated that the pace of interest rate hikes will be determined by economic data.
The upcoming US election will have a broad impact on financial markets, but for now the US dollar is holding its ground. However, dovish bets on the Fed remain steady and could limit the USD.
Daily Market Factors Review: US Dollar Rises Ahead of Weekend on Market Optimism
- Market optimism is driving the US dollar higher ahead of the weekend.
- The market expects solid growth in Q3, with the New York Federal Reserve’s Nowcast model predicting growth of 2.6% SAAR in Q3 and 2.2% SAAR in Q4.
- The Federal Reserve is likely pleased that the market is helping to maintain loose financial conditions, which should lend a hand the economy avoid a demanding landing.
- Despite the Fed’s efforts to counter market expectations of monetary easing, these actions have intensified.
- The market initially lowered its expectations following the decision but is now considering the possibility of an additional 75 basis points of rate cut by the end of the year.
- Even more unexpected is that the market is anticipating another 250 basis points of rate cuts over the next year, which would push the federal funds rate well below neutral.
DXY Technical Outlook: DXY bullish momentum weakens, technicals remain bearish
The DXY index has gained some upward momentum, but technical indicators remain bearish.
The Relative Strength Index (RSI) is 40, near oversold levels, while the Moving Average Convergence and Divergence Indicator (MACD) is displaying descending green bars, suggesting frail buying pressure.
These indicators suggest that the bears are in control and that the index is likely to continue its downtrend. Support: 100.50, 100.30 and 100.00 Resistance: 101.00, 101.30 and 101.60
