Despite gains, bets on Fed could limit US Dollar’s uptrend

The market is still overestimating Fed easing even while the Fed is defying dovish expectations. S&P Global preliminary September PMIs came in above forecasts, indicating that the economy is still doing well.

Fed representatives will make an effort to temper their dovish remarks. Amidst growing concerns of a recession, the US Dollar Index (DXY), which evaluates the US dollar’s value relative to a basket of other currencies, saw whipsawing trading on Wednesday, circling around a 14-month low. Fed easing is still expected to occur, but the market has consistently priced it in higher. The Fed has defied dovish forecasts.

We’ll be keenly monitoring Friday’s Personal Consumption Expenditures (PCE) data from August. Even while the US economy is slowing down in some regions, it is still strong in other places, which boosts overall economic activity. The Fed highlights that the course of interest rate changes will depend on upcoming economic data despite this conflicting picture.

Market Movers:
A further half-point Fed decrease is expected in November when the central bank meets again, according to rumors fueled by weak US consumer sentiment, particularly with regard to the labor market. The dollar was affected by this. New 2-and-a-half-year highs were reached by the Australian dollar and sterling. Following up on its package from yesterday, the PBOC lowered the one-year medium-term lending rate by 30 basis points. Against the majority of the G10 currencies, the dollar has steadied and turned higher after continuing to decline earlier today.

US Dollar gains despite steady dovish bets, markets await PCE figures. Market continues to overestimate the extent of Fed easing despite some Fed Governors’ efforts to curb dovish expectations.

Market is pricing in 75 bps of easing by year-end and 175-200 bps of total cuts over the next 12 months. On Thursday, Gross Domestic Product (GDP) and Friday’s PCE figures will be key for the USD dynamics.

In the final two meetings of the year, the Riksbank hinted that it would drop rates by 75 basis points, while Sweden implemented the anticipated quarter-point rate cut. Governor Macklem of the Bank of Canada recently hinted that the bank would quicken the rate of cutbacks. There is a variety of emerging market currencies. While central European currencies are trading with a stronger bias, Asian currencies performed nicely.

It is worth noting that Jerome Powell stated that the pace of the easing cycle will depend on incoming data, so their outcome might shake the USD. Fed Chair Jerome Powell will be on the wires on Thursday.

Technical Factors:

Bearish momentum persists, bulls lack strength, The DXY has largely bearish winds casting it about on the technical charts. The Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) gained some momentum, but the RSI remains below the negative zone, and the MACD continues to indicate flat green bars.

These technical indicators suggest that the bears are in control and that buying pressure is weak. Support levels can be found at 100.50, 100.30 and 100.00, while resistance levels are located at 101.00, 101.30 and 101.60.