The US Dollar (USD), as tracked by the US Dollar Index (DXY), had a mixed performance last Friday. It initially traded lower following the release of the payrolls and unemployment report but then moved higher as the New York trading session came to a close. At last check, DXY was at 105.95 levels, as noted by OCBC’s FX analysts Frances Cheung and Christopher Wong.
Last Friday, there were several remarks from Federal Reserve officials after the release of the Nonfarm Payrolls (NFP). Officials like Michelle Bowman reiterated the need for a gradual approach in lowering interest rates. However, she also mentioned that it’s currently hard to consider interest rates as restrictive. Another Federal Open Market Committee (FOMC) member, Hammack, believes that the Fed is “at or near” the point where it should slow down the rate cut. Austan Goolsbee also echoed the view that the pace of rate cuts will likely slow down next year. With the Fed’s communication blackout now in effect, the market’s attention will be firmly fixed on economic data ahead of the FOMC meeting scheduled for next Thursday (19 December).
This week, two key economic indicators are on the docket: the Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday. It seems that a 25 basis point (bp) rate cut for the December meeting is largely expected, barring a significant upside surprise in the US CPI. Market participants will also be closely watching the dot plot guidance for 2025. Currently, Fed fund futures are suggesting around three rate cuts for 2025, which is slightly fewer than the four cuts that were previously projected in the dot plot for that year.
From a technical analysis perspective, the daily momentum is showing a mild bearish trend, and the Relative Strength Index (RSI) has declined. Notably, a head and shoulders pattern appears to have formed on the DXY chart, with the index testing the neckline on Friday, which held firm. This pattern is typically considered a bearish setup. Should there be a decisive break below the neckline, it’s expected that the bears will gain more momentum. On the support side, key levels to watch are 105 (which represents the 38.2% Fibonacci retracement of the September low to the November high), 104.60 (the 50-day Moving Average), and 104.10 (the 200-day Moving Average and 50% Fibonacci retracement). For resistance, the levels are at 106.20/30 (corresponding to the 23.6% Fibonacci retracement and the 21-day Moving Average) and 106.70 (the level of the second shoulder in the head and shoulders pattern).
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