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19.01.202415:24 Forex Analysis & Reviews: Dollar: Short-Term and Medium-Term Outlook

Exchange Rates 19.01.2024 analysis

At the end of the week, the U.S. Dollar Index (DXY) remains in a range, standing slightly above (by 16 points) the 103.00 mark as of this writing. Meanwhile, the dollar itself, while remaining stable against European currencies, is declining against major commodity currencies such as the Australian, New Zealand, and Canadian dollars.

These currencies, in turn, have resumed their growth against the backdrop of rising U.S. stock indexes, commodity prices, and the dollar's fall against the Chinese yuan.

The strengthening of commodity currencies against the U.S. dollar is also facilitated by technical factors: the pairs USD/CAD, NZD/USD, AUD/USD, as a result of sharp movements, have reached key medium-term resistance/support levels of 1.3485, 0.6105, 0.6600, respectively, which is often followed by a rebound.

Exchange Rates 19.01.2024 analysis

The strong bullish impulse for the dollar that emerged at the beginning of the week due to the sharp escalation of the geopolitical situation in the Middle East and the Red Sea region seems to be gradually fading. However, a new escalation of the military conflict in Gaza or a new exchange of strikes by the U.S. and the Houthis could once again trigger a surge in interest in buying the safe-haven dollar. It is possible that Monday may open with another gap in such a case.

Today, investors will be monitoring the release (at 15:00 GMT) of the preliminary Consumer Sentiment Index from the University of Michigan. An increase in the index is expected in January, rising to 70 from 69.7 in December, which could give the dollar a short-term boost.

Exchange Rates 19.01.2024 analysis

Also, note that there will be no statements from the Fed over the weekend in anticipation of the meeting on January 31–February 1 (the so-called "quiet week").

Everything that the members of the Federal Reserve's leadership wanted to say regarding the prospects of the U.S. Central Bank's monetary policy, they have already done so. Specifically, Raphael Bostic, head of the Atlanta Fed, said on Thursday that the base scenario involves a cut in rates somewhere in the third quarter, but care must be taken not to lower rates prematurely or risk reigniting the price spiral.

Other Fed leaders have previously expressed similar sentiments about the market's premature expectations of the Fed's monetary policy easing. For example, Fed official Christopher Waller stated the day before that the inflation target of 2.0% is "within reach," but it is premature to rush changes in the interest rate, as it is still unclear whether the inflation slowdown is sustainable. In his opinion, the Fed should act cautiously to avoid economic shocks.

Statements made by Fed officials the day before reduce the likelihood of the start of monetary policy easing at the March meeting. Now it stands at less than 60%, according to CME Group data, compared to a 75% probability at the beginning of the week.

In turn, the dollar received support from the weekly jobless claims data published on Thursday. For the reporting week, the number of initial claims fell from 203,000 to 187,000 (forecasted at 207,000), and the number of continuing claims (for the week of January 5) fell from 1.832 million to 1.806 million (forecasted at 1.845 million). The data suggest that the U.S. labor market retains resilience despite the high interest rates set by the Fed, which, along with the resurgence of inflation, prompts the U.S. Central Bank to postpone the start of monetary policy correction to the second half of the year.

*这里的市场分析是为了增加您对市场的了解,而不是给出交易的指示。

Jurij Tolin,
Analytical expert of InstaSpot
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