The US Dollar (USD) continued to hover near recent highs amid Trump policy uncertainty, a possible return to US exceptionalism and less dovish Fedspeaks. DXY was last at 106.55 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.
“Overnight, Fed chair Powell said that the Fed does not need to be ‘in a hurry to lower rates’ and that the current strength of the economy allows it to approach decisions carefully. On labour market, he said ‘it is now by many metrics back to more normal levels that are consistent with employment mandate’.
“On inflation outlook, he spoke about near term fluctuation in recent range and to come down to 2% over time, albeit on a ‘sometimes bumpy path’. Markets have already scaled back probability of 25bp cut in Dec to 59% chance (vs 71% chance a week ago). Expectations will continue to adjust as US data comes. This puts focus on data tonight – empire manufacturing, retail sales, IP before next Fri’s prelim PMIs, Uni of Michigan sentiment data.”
“Firmer print will add to US exceptionalism narrative, keeping USD rates and USD elevated for longer, until data proves otherwise. Daily momentum is bullish while RSI shows tentative signs of slowing near overbought conditions. Near term, DXY may enter into consolidation. Resistance at 107, 107.40 (2023 high). Support at 106.50, 105.60 (76.4% fibo) and 104.50/60 levels (21DMA, 61.8% fibo retracement of 2023 high to 2024 low).”
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