Post-Fed Rally

Despite the Fed striking a more-dovish-than-expected tone at the FOMC this week, the US Dollar is trading higher into the end of the week with the DXY rising to a fresh one-month high. On Wednesday, the Fed stuck to its forecasts for three rate cuts this year with Powell downplaying the recent uptick in inflation as likely seasonal. However, on the back of that event, a slew of stronger-than-forecast US data has helped boost demand for the Dollar. There is also likely some impact here from the Fed lifting its growth and inflation forecasts for the year ahead. While the headlines of the event were clearly dovish, some of the details were a little more hawkish, creating some near-term uncertainty.

Data Strength

On the data front, the ISM manufacturing PMI yesterday came in above forecasts while unemployment claims were seen dipping. Additionally, the Philly Fed manufacturing index and existing home sales both came in above forecasts too. Given the strength in current data, price action in USD suggests that traders are pricing out the likelihood of any near-term rate cuts are instead looking at the risk that perhaps rate cuts get pushed back further into the year and that maybe we ultimately see less than 3 rate cuts, despite the Fed’s current forecasts.

Technical Views

DXY

The rally off the 102.49 level has seen the market breaking back above 103.48 level with price now testing above the bear channel highs. 104.95 will be the next key challenge for bulls with a break here seen opening the way for a much higher push towards 107.04, in line with bullish momentum studies readings.