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Traders were taken by surprise as Federal Reserve Chairman Jerome Powell delivered unexpectedly hawkish remarks, causing the US Dollar (USD) to initially surge, but subsequently ease during European trading on Friday.
Powell’s comments deviated from market expectations of upcoming rate cuts, creating a contrasting picture to earlier dovish statements made by Atlanta Fed President Raphael Bostic and Richmond Fed President Thomas Barkin.
In terms of technical analysis, the US Dollar Index experienced a boost from Powell’s remarks but struggled to maintain its gains. The index found support near 105.00 earlier in the week, leading to a modest rebound. However, a break below the key level of 105.10 could trigger a significant downward move, with 104.00 serving as the initial major support level.
Traders will closely monitor the impact of Powell’s words and focus on key economic data, including the preliminary Michigan Consumer Sentiment Index and Consumer Inflation Expectations, as they navigate the market landscape heading into the weekend. Should these indicators decline, the US Dollar Index could retrace its gains from Thursday evening, potentially ending the week with minimal profit or flat.
While the initial boost from Powell’s remarks may fade, it is important to note that unexpected global market events could sway sentiment and prompt safe-haven flows into the US Dollar. A possible rebound towards the pivotal level of 105.85, a significant level from March 2023, could be within reach. A successful break above this level might lead to a revisit of recent peaks near 107.00.
