Dollar Rebounding Higher on Tuesday
Dollar Rallying Pre-FOMC
The Dollar is pushing higher today as traders await the October FOMC meeting tomorrow. While no change in rates is expected, risks of a hawkish signal from the Fed for December are well understood. The recent surge in US inflation as well the stickiness in energy prices at elevated levels makes a strong case for further tightening from the Fed and market pricing for a December hike is currently above the 80% level. As such, Dollar bulls will be looking for a firm endorsement from the Fed tonight and a clear signal that further tightening ahead of year end is on the cards. If this is given, USD should find room to grind higher near-term with a potential breakout to fresh YTD highs depending on how hawkish the Fed sounds. On the other hand, given the level of hawkish expectation within the market, if the Fed fails to satisfy bulls USD could see a sharp unwinding as traders scale back year-end tightening expectations.
AI Sentiment Recovering
USD is also being helped today by a stabilisation in sentiment around AI stocks. Soaring capex levels, concerns over funding levels and some earnings misses last week from big names such as Meta and Tesla had hit stock sentiment hard. Indeed, the plunge lower in US stock markets has been cited as a potential barrier against any near-term Fed tightening. As such, an improvement in that narrative and some recovery action in stocks bodes well for USD bulls near-term. Traders will now be looking to see if and how the Fed addresses the issue tomorrow.
Technical Views
DXY
The index is now pushing back above the 101.91 level again and with momentum studies turning higher again focus is on a fresh test of the 103.20 level next and a continuation of the bull channel. If we break the channel lows, focus will turn to support down at the 100.18 level as the next key downside marker to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.