Tomorrow and Thursday will likely be the most volatile days for the USD this week because of the testimony given by Jerome Powell. Here are some things to look out for as well as a couple trade setups that could lead to huge market swings either up or down.
Bullish Case For USD
In order for the USD to be more bullish, investors need to be more fearful of a recession as well as further tightening monetary policy. Because inflation is so high, analysts fear that it may take years before we come back to the Fed's original target of 2%. Powell may make remarks about this in the upcoming testimonies, and it would be very important to listen for this when we trade.
Powell will also address current policy towards the inflation cap where he will either stay the course or loosen up for expansionary reasons. If he says that the 75 basis points hikes are likely to continue, we may start to see another rise in USD. The original plan was to bring rates up by a quarter of a percent each time, however, this changed to half and then three-quarters of a percent in the most recent hike.
Bearish Case For USD
Should Powell state that in terms of the economy, the US is doing better than they thought, the price of the dollar might fall. Additionally, if Powell says that the economy is in trouble and the Fed wants to loosen policy, we also might see a fall in USD.
The US unemployment rate is another thing to look out for as jobless claims come in on Thursday. Higher unemployment usually means bullishness for the dollar. However, now investors might be looking at higher unemployment/higher jobless claims as bearishness for the USD. This is because the worse the US economy is doing, the more likely it is for Powell to take a less hawkish stance toward the dollar and raise rates at a slower and lesser pace.
USD Trade Setups
This pair on the 1D timeframe has come down to support on a rising trend line. Price also hit the 50% fib level and has been showing considerable rejection from the lows in each of the last three trading sessions. If price bounces from here, we might see the pair go back up to the double top it established in the week before above 1.00000.
Pound-dollar is barely up today after a weak rally to the upside. A strong falling trend line sits right above price which may serve as a short opportunity on the 1D timeframe. Today's candle is already showing signs of rejection from the highs, so there might be selling pressure in the near future depending on how this candle closes. Should price retrace, it could come down to test the lows of 1.19520s.
EURUSD inches higher with the stock market today although momentum is not very strong at open. Price is nearing resistance around the 50 DMA with a 1.07600s resistance level right above that. Lagarde plans to hike twice this summer but the US has already hiked 3 times and plans to reach over 4% interest by the end of the year. This gives USD a bullish advantage over the euro.
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