US Dollar halts recovery as traders await Fed Powell speech

• The US Dollar turns south after snapping the recent selling spree on Thursday. 
• All eyes are on Fed’s Chair Jerome Powell, who is expected to deliver on market expectations for rate cuts at Jackson Hole. 
• The US Dollar index trades just above 101.00 and faces a substantial technical position on the weekly chart. 

The US Dollar (USD) softens on Friday, trying to keep the gains it acquired on Thursday after economic data and Fed speakers provided a much-needed boost to the Greenback. Kansas City Fed Bank President Jeffrey Schmid said to be cautious about current market expectations of big rate cuts, and upbeat US Purchasing Managers Index (PMI) numbers showed a resilient Services sector. The end of the week will be driven by US Federal Reserve Chairman Jerome Powell’s speech at Jackson Hole. A lot has been written and debated on what Powell will say:  markets are expecting him to open the door to rate cuts in September, but Powell might not commit to calling out when and how much the Fed will cut. 

On the economic data front, it will all be around the Fed. Three other Fed members will be speaking on financial news outlets such as CNBC and Bloomberg television before and after Fed Powell’s speech in order to guide markets and tweak communication in case they see any market movements which could point to a misinterpretation by markets. 

Daily digest market movers: Saying it best by saying nothing at all

• The Jackson Hole schedule from Jackson Hole:
  • At 12:00 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic will speak on CNBC. An hour later, at 13:00 GMT, he will speak again on Bloomberg Television. 
  • At 14:00 GMT, Fed Chairman Jerome Powell will speak at the Jackson Hole Symposium. His speech will be released at that time. So any market movements will already have taken place probably before Powell has said one word on the stage.
  • Federal Reserve Bank of Philadelphia President Patrick Harker will comment at 15:00 GMT on Bloomberg Television to guide markets.
  • President and chief executive officer of the Federal Reserve Bank of Chicago Austan Goolsbee, will try to guide markets towards the closing bell with further comments and guidance at 16:30 GMT on CNBC, followed by comments around 17:45 GMT on Fox and again at 18:15 GMT on Bloomberg Television.
• At 14:00 GMT, New Home Sales will come out, but expect this number to be overshadowed by the speech from Fed Chairman Powell. Previous sales were down 0.6% in June, with no forecast available for the July number. 
• Equities overall are not really spooked by the upcoming pivotal speech from Fed Chairman Powell and are advancing further. Asia is set to close this week on a positive note, Europe posts green numbers as well and US futures are even more optimistic. 
• The CME Fedwatch Tool shows a 75.5% chance of a 25 basis points (bps) interest rate cut by the Fed in September against a 24.5% chance for a 50 bps cut.  Another 25 bps cut (if September is a 25 bps cut) is expected in November by 51.1%, while there is a 41.0% chance that rates will be 75 bps below the current levels and a 7.9% probability of rates being 100 basis points lower. 
• The US 10-year benchmark rate trades at 3.85%, just below the high of this week of around 3.90%. 

US Dollar Index Technical Analysis: Is everything in it?

The US Dollar Index (DXY) has the potential to move substantially this afternoon. Very high anticipations that Fed Chairman Powell will confirm rate cuts are underway is the minimum base case in the market expectations. Any less than that could see some substantial Dollar bids coming in, with the DXY soaring higher, while a verbal confirmation of a rate cut in September and by how much would see the DXY flirt with a break below 100.00. 

For a recovery, the DXY faces a long road ahead. First, 101.90 is the level to reclaim. A steep 2% uprising would be needed to get the DXY to 103.18 from where it is trading now, around 101.00.  A very heavy resistance level near 104.00 not only holds a pivotal technical value, but it also bears the 200-day Simple Moving Average (SMA) as the second heavyweight to cap price action.

On the downside, 100.62 (low from December 28) will be the next vital support in order to avoid another meltdown.  Should it break, the low of July 14, 2023, at 99.58 will be the ultimate level to look out for. 

US Dollar Index: Daily Chart