USDIndex, H4
Powell’s return as Fed chairman for a second term signals the stability of the Fed and raises bets on expectations that the Fed will remain in its policy tightening stance by reducing the stimulus and raising interest rates faster than expected. As a result, US Treasury yields advanced to a four-week high yesterday of 1.8% (now at 1.64%), and the US Dollar was the strongest in 16 months, with the USDIndex holding steady at 96.50. Bond yields and the appreciation of the US Dollar have become the limitations of the stock market at this time, especially technology stocks.
Yesterday’s economic data was mixed, with the US manufacturing PMI for November at 59.1, up from a ten-month low of 58.4 seen in October, while the November services PMI fell to 57.0 from 58.7 in the previous month and below the 59.0 expected by the market.
Today’s economic calendar is packed with important US data before Thanksgiving. This includes the third-quarter (2nd) GDP growth forecast, which is expected to rise to 2.2% from the initial 2% estimate but is still sharply down from the 6.7% seen in the Q2 October core PCE inflation figures. Food and energy prices are not included. It is expected to rise to 0.4% monthly from 0.2% in September and 4.1% y-o-y from 3.6% in September. The calendar also includes durable goods orders, Michigan Consumer Confidence Index and weekly unemployment claims and finally the minutes of the FOMC meeting.
From a technical perspective, the USDIndex maintains a strong uptrend, which is currently in the middle of a correction, building a base around the high 96.50 with the trendline as an important support. If today’s overall economic data comes out good then the next resistance target will be at 97.30. We are starting to see a bearish divergence signal where the MACD has crossed the signal line, but is still above the 0 line, so if the data comes out below what the market expects this could result in the dollar index retreating to the 96.00 support or possibly deepening to 95.50.
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Chayut Vachirathanakit
Market Analyst – HF Educational Office – Thailand
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