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July 25, 2022

Get Ready For A Big Dollar Move

Frank Cabibi

There is a busy week ahead for the US dollar as expectations of another rate hike cause shakiness in currency pairs as well as the stock market. Thursday's news and the days leading up to it will undoubtedly bring harsh volatility back to USD pairs. Dollar performance is mostly mixed as we start off the week.

0.75% Hike Expectation

Investors are gearing for another 75 basis point hike on Thursday which will take the funds rate to 2.50%, the highest level since 2019. This is just one hike of several that are expected to come this year as the Fed plans to keep inflation primarily in their sights.

dollar
USD interest rate

The Federal funds rate is forecasted to hit 3.50% by the end of the year. 50-75 bp seems to be the range at which we will see interest rates rise, and this will likely continue until it is pars inflation, which the timeframe is still up in the air.

FOMC will also provide further insight on its monetary stance, but Powell has made things clear to investors who are looking to price in a higher dollar. Price tends to complete its move before rates hit their highest point before coming back down, so the dollar is in the middle of a significant long run move. So, the dollar's price will probably continue to rise for the rest of this year.

Dollar Trade Setups

USD/JPY

dollar

UJ bounced up from a rising trend line on the 4H timeframe while showing signs of bullishness. The pair has recently made higher highs after the bounce suggesting momentum has shifted back to the upside. If price continues to rise, a few levels of resistance are around 137 and 138.800 which could serve as potential price targets.

GBP/USD

dollar

GBPUSD has been bullish recently due to an increase in risk appetite. Traders could be viewing this area as a resistance potential short setup for the pound after touching the 1.20000s. The pair is already retracing from the recent highs which could be the start of a larger move downward. Additional levels of support lies around 1.19200 and 1.17700.

USD/CAD

dollar

USDCAD continues to fall on a strong Canadian economy and equal interest rate. This pair is showing signs that it wants to complete its move lower to the 1.26500s where there is a rising trend line. However, the chances of USD rebounding could cause a pop in the pair's price in the short run. The pair has been trending upward since 2021 in an upward channel, so a move towards the channel low may be a decent long setup for the USD.

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