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US Dollar: Hawkish Powell This Week Could Spark Rally Toward 107

Published 03/18/2024, 08:19 AM
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  • Last week, the US dollar fluctuated as inflation data came in above expectations, sparking volatility.
  • Amid talks of potential shifts in Federal Reserve policy, investors are eyeing the upcoming Fed meeting for clues about future interest rate decisions.
  • With expectations of a rate cut in June, the Fed's statements following the meeting could heavily influence market sentiment and the dollar's trajectory.
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  • The US dollar mostly moved sideways but took a bullish turn towards the end of the previous week. Inflation data sparked volatility in the dollar index as CPI and PPI both came in above expectations, fueling inflation fears.

    Following the data, expectations regarding the Federal Reserve's policy began to shift. Market discussions suggested that the Fed might cut interest rates twice this year instead of thrice, leading to a boost in the greenback.

    Consequently, the Fed's decision after the meeting holds significant importance as it will provide clues about the central bank's future actions.

    US Dollar Index: Fed Decision Could Lift the Greenback

    The Fed is expected to keep interest rates unchanged this month, with a potential rate cut looming in June depending on inflation trends.

    DXY Price Chart

    The statements following the FOMC meeting this week will be crucial for investors, who are anticipating a 72 basis point rate cut for the year.

    There's a 58% chance of interest rates decreasing in June, contrasting with the Fed's earlier projection of 3 rate cuts and a 75 basis point reduction for the year.

    Currently, data-driven analysis supports the expectation of a change in forecasts, sustaining demand for the dollar. After bouncing back from support around 102.8 last week, the DXY returned to the 103 region.

    Technically, the DXY is testing the short-term trend line at 103.5 today, with a potential breakout targeting 103.95 as the first resistance point. The Stochastic RSI on the daily chart suggests a bullish momentum.

    Maintaining levels above 103.6 is crucial amidst potential volatility this week for the upward movement to continue. A hawkish approach from the Fed on Wednesday could strengthen the dollar, potentially propelling the DXY towards the 107 region.

    Conversely, a dovish stance from the Fed, accompanied by optimistic economic statements, may keep the dollar trading sideways in the current region.

    Gold Hovers Above Solid Support Level

    Gold saw a partial decline last week after peaking at $2,195 the previous week. The retreat in gold continued to the $ 2,150 region and there is solid support in this region.XAU/USD Price Chart

    In the short term, the price range of $2,145 - $2,150 holds key significance. If the 8-day EMA value stays above Fib 0.236 from the recent rise, it could prevent a rapid decline.

    If the Fed makes hawkish statements this week, boosting the dollar, gold might continue to ease. This could lead to a retreat towards the next support zone of $2,115 - $2,120.

    Technical indicators suggest that a sustained correction could occur if there's a day closing below the support line, possibly extending down to $2,145.

    While the recovery movement since the second half of February forms an ascending channel, gold's current position tests the middle band of this channel.

    If the support at $2,150 holds, a breakout could strengthen the trend towards the lower band of the channel, aligning with the second support line mentioned earlier.

    This week, many central banks will announce interest rate decisions, with the Fed being the most crucial.

    A possible dovish stance from the Fed could bolster gold above $2,150 in the short term. Additionally, gold might benefit from market indecision, sustaining its upward momentum above $2,150, especially if the dollar remains stable.

    As a result, markets may experience increased volatility in the second half of the week, following a potentially sideways movement in the first half.

    ***

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    Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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