U.S. index ends losing streak as top Fed officials make hawkish remark
On Tuesday (June 28), the U.S. dollar index stopped its losing streak and closed at 104.50 on the day, up about 0.5%. Fears of a recession in the U.S. economy have eased, and hawkish remarks from Fed heavyweights have boosted the dollar.
On the same day, the third-in-command of the Federal Reserve, New York Fed President Williams, said that interest rates will definitely need to be raised to 3%-3.5% this year, and said that recession is not his basic expectation. Williams pointed out that the Fed needs to raise interest rates significantly this year, the federal funds rate of 3.5%-4% is reasonable, and the real interest rate needs to be above zero. He believes the long-term neutral rate has not changed and remains low, which is one reason the Fed will need to raise rates significantly this year and next.
Separately, Williams said the U.S. economy was strong, financial conditions tightened, and that the balance sheet reduction was “exactly as planned” and that he saw no signs of a “taper tantrum.” Regarding the July meeting to raise interest rates by 50 basis points or 75 basis points, Williams said it still needs to be discussed.
San Francisco Fed President Daly expects U.S. economic growth to slow, perhaps below 2 percent, but not negative. Daly said the strength of the U.S. economy, especially the labor market, puts the U.S. in a better position to achieve a soft landing. Daly said inflation is the main threat to the economy, and it is so high that the Fed must contain it.
The remarks of the above-mentioned Fed officials have cooled down the “recession theory” and consolidated investors’ expectations for the bank to continue to raise interest rates sharply, easing the dollar’s recent weakness to a certain extent. In this regard, the author believes that until more bad data is released, it should not be easily changed!
On this trading day (June 29), the United States will release the final value of the annualized quarterly rate of real GDP in the first quarter of the United States, the final value of the annualized quarterly rate of the core PCE price index in the first quarter of the United States, and the final annualized sales volume of the first quarter of the United States. Data such as the final quarterly rate may interfere with the short-term trend of the dollar. However, given that the above data is clearly in the past tense, it will not have much impact on future expectations. The author believes that compared with only raising interest rates by 25 basis points in March, the Fed’s continuous sharp interest rate hikes in May and June will inevitably have a greater impact on the economy. In other words, the performance of US economic data after May may be more convincing.
But it can be said objectively that so far in May, the performance of various US economic indicators has not weakened one-sidedly, while the inflation data continued to soar. This is also the reason and confidence for the Fed to resolutely raise interest rates sharply to suppress inflation. The author believes that if the US economic data does not show a disappointing decline, the Fed should not doubt the continued action of sharp interest rate hikes, and should not abandon the bullish view of the dollar.
Dollar Index Technical Analysis: Overall bullish pattern unchanged
The daily chart of the U.S. dollar index shows that the price continued to rise after touching 89.54 on May 25 last year, and entered a steeper upward pattern in mid-January this year. At present, the market remains within the upward channel of the year, and the overall bullish pattern remains unchanged.
The short-term support is at 103.42. If this position is lost, it is expected to test the lower track of the channel. The more important support is 101.30. Once it falls below this level, the market may declare a staged peak. At that time, it may not be ruled out to step back on the upward trend line since May last year to seek support.
The upper pressure is at 105.79. If it breaks and stabilizes this position, it is expected to lay a solid foundation for the rise to the 110 mark.
