Based on the original article “A Detailed Look At The FX Market After Powell’s Speech: Technical Levels” by Marc Chandler published on Seeking Alpha, the foreign exchange (FX) market responded to recent developments in the U.S. economy and Federal Reserve policy. Below is a rewritten and expanded analysis of the FX market’s behavior following Fed Chair Jerome Powell’s latest speech, incorporating the essential themes and technical levels highlighted in Chandler’s original commentary.
Credit: Original article by Marc Chandler, Seeking Alpha.
Overview
The FX market reacted dynamically to Jerome Powell’s remarks following the latest Federal Open Market Committee (FOMC) meeting. While the Federal Reserve maintained its interest rate unchanged, the overall tone of Powell’s speech and the content of the updated Summary of Economic Projections (also known as the “dot plot”) led participants to reevaluate the path of future policy actions. These signals had immediate repercussions in currency markets, particularly in pairs involving the U.S. dollar, euro, Japanese yen, British pound, and other major global currencies.
Key Highlights from Powell’s Speech and Market Interpretation
– Powell emphasized that although inflation has come down from its peak, it remains above the Federal Reserve’s 2 percent target.
– The Federal Reserve maintained a wait-and-see approach, indicating that further progress in inflationary moderation would be necessary before rate cuts begin.
– Market expectations for rate cuts in 2024 have become more subdued, with fewer anticipated reductions compared to prior assumptions.
– The dot plot showed a median expectation of just one 25-basis point rate cut in 2024, down from three in the previous projection.
– Powell reiterated his data-dependent stance, underlining that softening in labor markets and further disinflation would be necessary for easing to take place.
Dollar Index (DXY) – Breakout and Momentum
– The U.S. Dollar Index (DXY), a commonly used measure of the dollar’s performance against a basket of major currencies, surged following Powell’s remarks.
– The index broke out above a technical resistance zone near 105.00, which had acted as a cap for several sessions.
– Momentum indicators confirm the bullish breakout, with short-term moving averages pointing higher.
– The Relative Strength Index (RSI) has moved into overbought territory, but there’s little signal yet of a reversal.
Technical Observations:
– Support: Around the 104.25–104.40 range.
– Resistance: Next potential resistance is around the 106.50–106.75 area.
EUR/USD: Euro Weakens Further
– The euro lost ground versus the U.S. dollar, reflecting diverging monetary outlooks between the European Central Bank (ECB) and the Federal Reserve.
– While the Fed strikes a hawkish tone, the ECB is signaling a more dovish approach, with growing expectations of rate cuts starting as early as the summer.
– Macro data across key Eurozone economies—including Germany, France, and Italy—suggests slowing growth and continued disinflationary pressures.
Technical Observations:
– The EUR/USD pair fell below the 1.0700 level, a significant psychological and technical support.
– The breach paves the way for a potential move toward the 1.0600 level.
– Resistance: Initially seen near 1.0740 and again at 1.0800.
– Support: Near-term support is around 1.0660, followed by 1.0600.
JPY/USD: Yen Continues Its Slide
– The Japanese yen remains under pressure as the Bank of Japan (BOJ) continues its ultra-accommodative stance, diverging starkly from other major central banks.
– U.S. yields have surged post-FOMC, further supporting the dollar against the yen.
Technical Observations:
– The USD/JPY pair surpassed the 157.00 level and is approaching key resistance around 160.00.
– Momentum remains bullish, though Japanese authorities have increased their rhetorical interventions over potential FX volatility
Explore this further here: USD/JPY trading.