At the end of the week, which has been so favorable for the dollar, it continues to dominate the market.
As indicated by the data presented on Tuesday and Thursday, the CPI and PPI indices recorded an acceleration in inflation, providing the Fed policymakers with an opportunity to postpone monetary policy easing.
Market and economists' expectations on this matter have shifted mainly to June or the second half of the year. According to CME Group data, the probability of a Fed rate cut in June is just over 50%.
However, if inflation continues to accelerate, and the American economy and labor market demonstrate the same resilience, the beginning of the Fed's monetary policy easing cycle may be postponed to a later period, perhaps even to next year.
The American dollar has sharply strengthened, supported in part by the rise in U.S. government bond yields.
However, today, the growth in these yields has stopped, and so has the rise of the dollar and its DXY index, which nevertheless managed to reach a 6-day high today at 103.25.
The Federal Reserve meeting will take place next week. Its decision on the interest rate will be published on Wednesday (at 18:00 GMT).
It is widely expected at the moment that the rate will remain at the current level of 5.50% at this meeting. Investors want to hear Fed Chairman Jerome Powell's opinion on the Fed's plans for this and the following year. Also of interest will be the Fed's report with forecasts for interest rates, inflation, and economic growth for the next two years, and, no less importantly, the individual opinions of FOMC members on interest rates.
At 18:30, the Federal Open Market Committee press conference will begin. Any unexpected statements by Powell on Fed monetary policy will cause volatility in the dollar quotes and in the U.S. stock market.
His hawkish rhetoric regarding high inflation and the need to continue fighting it will strengthen the dollar. Conversely, Powell's dovish stance and hints of a possible early start to the Fed's policy easing cycle will trigger mass sell-offs of the dollar.
Nevertheless, the majority of market participants continue to expect three Fed rate cuts this year and two more next year.
From a technical point of view, for the resumption of the medium-term bullish trend of the dollar index (CFD #USDX in the MT4 terminal), it is necessary to break through into the zone above the key resistance level of 103.70 (200 EMA on the daily chart).
At the same time, the DXY remains in the zone of the long-term bullish market, making long positions above the key support level of 100.75 (200 EMA on the weekly chart) preferable.
The very first signal for new purchases here could be a breakthrough of the important resistance level of 103.50 (200 EMA on the 4-hour chart, 50 EMA on the daily chart).
However, a breakthrough of the important short-term support level of 103.15 (200 EMA on the 1-hour chart) may be the first signal for increasing short positions, with a breakthrough of last week's low of 102.33 confirming it. Downside targets are the key support levels of 102.00, 100.75, 100.00.
Support levels: 103.15, 103.00, 102.70, 102.30, 102.00, 101.90, 101.00, 100.75, 100.00
Resistance levels: 103.50, 103.70, 104.00, 104.25, 104.59, 104.90, 105.00, 106.00, 106.80, 107.00, 107.30
Trading Scenarios
Alternative scenario: Buy Stop 103.60. Stop-Loss 103.10. Targets 103.70, 104.00, 104.25, 104.59, 104.90, 105.00, 106.00, 106.80, 107.00, 107.30
Main scenario: Sell Stop 103.10. Stop-Loss 103.60. Targets 103.70, 104.00, 104.25, 104.59, 104.90, 105.00, 106.00, 106.80, 107.00, 107.30
"Targets" correspond to support/resistance levels. This also does not mean that they will necessarily be reached, but they can serve as a guide when planning and placing trading positions.
