Dovish Fed shift could bring further USD weakness
The dollar has been losing ground amid a more ‘wait and see’ approach from the Fed, could this be the beginning of a more bearish phase for the greenback?
The Federal Open Market Committee (FOMC) delivered on their new dovish shift last week, with a slowdown in the world’s largest economy going a long way to forcing the hand of Powell and co. The decision to move away from the persistent rate hikes of years gone by has raised questions over whether this is going to be a fleeting pause or something more indicative of a wider reversal in approach from the Fed.
Much of this will be dependent upon the data, with continued weakness in growth and purchasing managers index (PMI) data likely to provide the basis for a continued ‘wait and see’ approach from the Federal Reserve (Fed). That data is largely going to be dependent upon the outcome of trade negotiations between US and China. The breakdown in economic data across the top two nations comes as no surprise given the ongoing trade spat over the second half (H2) of 2018. A conclusion to that trade war would start to put things back onto a more stable footing, yet until then we could see further weakness and easy monetary policy.
While the US economic picture has been gradually easing back a little, the Fed’s hawkish stance has shown little signs of slowing up until the end of 2018. With the Fed now looking at holding off on any further rate hikes for the time being, it comes as no surprise to see the greenback suffering in response. The weekly chart below highlights the fact that we have been moving lower from trendline resistance since early December, with the dollar seeing just one week of gains within the past seven attempts. Instead, there is a chance we will see the greenback move into a more bearish phase. With the index having broken below the lower boundary of a rising wedge, there is certainly a chance we could see the bears start to take hold, with a break below 9337 in particular providing confirmation to such a bearish outlook.
The daily chart highlights the possibility that we are retracing the upward move from 9337, with the index turning higher following a failed attempt to break below 9450. A break above the 9615 swing high would certainly go some way to negating the bearish story. However, until that happens there is a good chance that we could see the dollar start to weaken once again as we approach that crucial 9337 breakdown level.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get spreads from just 0.1% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.