Adapted and expanded from the original article by Marc Chandler on Seeking Alpha: “A Detailed Look At The FX Market After Powell’s Speech – Technical Levels”
Overview
Following Federal Reserve Chair Jerome Powell’s recent comments at the Jackson Hole Symposium, the foreign exchange market has seen significant shifts. Powell maintained a cautious tone, reinforcing the Fed’s data-dependent approach to monetary policy and leaving the door open to further tightening if needed. His emphasis on managing inflation without derailing economic growth has contributed to market speculation about the path of interest rates. Consequently, the US dollar held steady, while other currencies responded based on local factors and relative central bank positioning.
This detailed analysis explores the movements in major FX pairs in light of Powell’s speech and current technical levels that may guide traders in the short term.
Market Sentiment After Powell’s Speech
Powell’s remarks reflected a continuation of recent Federal Reserve messaging. He emphasized the need for vigilance on inflation and acknowledged the risks of overtightening. Some key takeaways:
– The Fed is likely to hold rates steady in the near term as it assesses the effect of prior hikes.
– No firm confirmation of rate cuts, signaling higher-for-longer policy stance.
– Powell highlighted that inflation remains above the Fed’s 2% goal, but improvements are evident.
– There was a slight decline in market volatility as Powell avoided aggressive hawkish rhetoric.
As a result, the dollar index (DXY) stabilized following the speech, reflecting uncertainty but not panic. Other major central banks, facing their own inflationary pressures, continue to diverge in policy outlooks, influencing their respective currencies.
US Dollar Index (DXY)
– The dollar index finds initial resistance at the 104.25 level, just under its 200-day moving average.
– Support is seen around 103.00, aligning with last week’s lows.
– The dollar gained against the yen and euro recently, indicating a broader theme of US resilience.
– Indicators such as RSI (Relative Strength Index) are approaching overbought levels on the daily chart, suggesting consolidation may occur if no new data fuels further USD buying.
EUR/USD: Euro Struggles with Weak Sentiment
The euro remains under pressure as growth indicators suggest a slowing eurozone economy. The European Central Bank (ECB) faces a dilemma over tightening policy amid lackluster performance from major economies like Germany. Key developments:
– The pair’s failure to recover above 1.0900 signals a bearish bias.
– Support is evident near 1.0760, which marks the August low.
– Resistance near 1.0950 holds unless the ECB surprises with a hawkish statement.
– EU inflation data remains crucial to gauge further ECB moves.
Technical Observations on EUR/USD:
– Daily MACD (Moving Average Convergence Divergence) shows downside momentum.
– The pair remains below key moving averages, such as the 100-day and 50-day, confirming bearish structure.
– Any failed break above 1.0900 may invite fresh selling towards the 1.0720 level.
GBP/USD: UK Outlook Still Clouded
Sterling is struggling as confidence in the UK economy fades. The Bank of England (BoE) has hiked aggressively but now appears more cautious. The real yield advantage once enjoyed by the pound has diminished. In addition:
– GBP/USD has been unable to sustain moves above 1.2800.
– The next downside support comes in at 1.2570, followed by the larger level near 1.2450.
– The BoE’s rate path appears more uncertain than the Fed’s, prompting investors to reassess long GBP positions.
Drivers of Sterling:
– Weak retail sales and soft business surveys have dented sentiment.
– Inflation remains elevated but showed signs of easing, complicating the policy direction.
– Sterling tends to trade more risk-on and thus is weighed down by global risk aversion.
Technical Outlook:
– Bears may regain control if 1.265
Explore this further here: USD/JPY trading.