US Dollar Price and Chart Analysis
- Federal Reserve message on inflation concerns.
- US Treasury yields turn higher, and 2/10s invert further.
This week has seen a group of Federal Reserve members spreading the central bank’s message that US inflation is elevated and that interest rates will need to be ramped up further to try and dampen domestic price pressures. Various board members voiced a common message that the central bank is nowhere close to ending rate hikes, that another 75bp rate increase is still on the cards, and that interest rates will likely remain higher for longer in the battle against inflation. This hawkish pushback by the Federal Reserve is propping up the US dollar after its recent bout of weakness.
The yield on the benchmark US 10-year nudged higher overnight, breaking its recent sell-off from a June high of just under 3.50%. Bond yields have been falling in the last two months as markets began to price in a Fed pivot on interest rates as recession fears grew. The 2/10-year US Treasury yield curve is currently inverted by over 36 basis points, a two-decade record, indicating that market participants still believe the recession story despite the Fed’s latest round of jawboning and yesterday’s strong US ISM data.
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The latest US Jobs Report (NFP) will be released tomorrow and the market is currently predicting a further slowdown in job creation. The markets are expecting 250k new jobs to have been created in July compared to 370k new positions in June.
The US dollar basket (DXY) is currently trading marginally lower on the session and is trapped between the 20- and 50-day simple moving average, suggesting a degree of indecision in the short- and medium-term. A prior swing-high (June 15) joins the 50-day sma at 105.55 to provide the first level of support, while resistance is seen at 106.53, made up of Tuesday’s high and the 20-day sma.
US Dollar (DXY) Daily Price Chart – August 4, 2022
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