DXY looks at annual lows ahead of FOMC minutes

US dollar Index, DXY, FOMC, Asset Purchases, Coronavirus – Talking Points:

  • Stock markets have stopped to breathe during Asia-Pacific trading.
  • The minutes of the FOMC meeting may set out the short-term outlook for the US dollar.
  • The US Dollar Index (DXY) is looking at its annual lows after falling thanks to key support.

Asia-Pacific recap

The recovery in global stock markets slowed somewhat during Asia-Pacific trading, as investors weighed in on vaccine progress against a continuing rise in coronavirus infections.

Australia ASX 200 climbed 0.59% while Japan Nikkei 225 extended its push to 29-year highs, up 0.50%.

China’s CSI 300 index fell 1.2% on news that three state-owned companies had missed their scheduled debt repayments.

In the foreign exchange markets, AUD, NZD and GOUJAT slipped lower relative to its safe-haven counterparts, while the US dollar gained ground.

Crude Oil Price continued to climb despite an unexpected rise in US inventories, with API data showing a build of 3.8 million barrels in the week ending Nov. 20.

Going forward, U.S. jobless claims and PCE data could prove the market is advancing ahead of the November FOMC meeting minutes being released.

US Dollar Price Outlook: DXY Seeks Yearly Lows Ahead Of FOMC Minutes

Market reaction table created using TradingView

US dollar could slide on FOMC minutes

The upcoming release of the minutes from the Federal Open Market Committee’s November monetary policy meeting could dictate the near-term outlook for the heavily under fire US dollar.

A string of positive vaccine results severely undermined the greenback associated with the safe-haven, with investors turning capital to growth-sensitive assets and higher beta currencies.

Clinical results showing that the vaccine developed by the University of Oxford and AstraZeneca was, on average, 70% effective in preventing infections fueled market optimism, building on the strong results Pfizer and Moderna earlier this month.

In addition, recent impressions of fundamental data illustrate a resiliently resist a third wave of Covid-19, with the IHS Markit Composite PMI posting its biggest gain in more than 5 years in November, according to preliminary estimates.

US Dollar Price Outlook: DXY Seeks Yearly Lows Ahead Of FOMC Minutes

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However, these positive developments might not convince the Federal Reserve to keep its monetary policy parameters stable, given that initial jobless claims surged unexpectedly in the week ending November 14 and several states have significantly increased. tightened restrictions on coronaviruses.

Indeed, President Jerome Powell and his colleagues discussed central bank asset purchases and “how we can adjust the parameters of them to provide more accommodations if appropriate” during the meeting. of the FOMC in November.

That being said, several central bank members have suggested that the current bond buying program should be kept as is, with New York Fed Chairman John Williams saying that “I think they really serve well their goals at the moment ”.

US Dollar Price Outlook: DXY Seeks Yearly Lows Ahead Of FOMC Minutes

St Louis Fed Chairman James Bullard echoed his colleague’s comments, saying: “I think we currently have a strong program in place. [and] I see no reason to change at this point ”.

Nonetheless, with Treasury Secretary Steven Mnuchin refusing to extend several of the Federal Reserve’s lending facilities after December 31 and hospitalizations due to the surge in Covid-19, the central bank could seek action as soon as possible.

To that end, investors will likely review the FOMC meeting minutes for clarity on the central bank’s outlook, with the suggestion of further easing that could exacerbate the decline in the US dollar.

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Daily chart of the US dollar index (DXY) – annual low

US dollar price outlook: DXY looks to annual lows ahead of FOMC minutes

Daily chart of the DXY index created using Tradingview

From a technical standpoint, the US Dollar Index (DXY) appears poised to challenge the annual low set on September 1 (91.75), after failing to climb above resistance to the low of July (92.55).

With the RSI falling below 40 and the MACD indicator following firmly below its respective midpoint, the path of least resistance appears biased downward.

Ultimately, a daily close below the September low is needed to signal the resumption of the primary downtrend and bring the 38.2% Fibonacci (91.16) into play.

Alternatively, pushing back above 92.50 could neutralize short-term selling pressure and open the door for prices to challenge the confluent resistance at the 50-day moving average (93.25) and the 8-month downtrend. .

US Dollar Index (DXY) 4-Hour Chart – 61.8% Fibonacci Could Trigger Short-Term Bounce

US dollar price outlook: DXY looks to annual lows ahead of FOMC minutes

4 hour DXY chart created using Tradingview

However, a four-hour zoom suggests that prices may rebound higher as prices constructively hold above key support at the 61.8% Fibonacci (92.06) midline and midline support. Andrews’ Pitchfork.

The development of the RSI suggests a bullish momentum, as the oscillator temporarily returns to its neutral midpoint.

That being said, a prolonged push up seems relatively unlikely given that the price is firmly following the four moving averages and the MACD indicator continues to travel into negative territory.

Nonetheless, the DXY could move up towards the 21-MA (92.33) if the support at 92.00 remains intact, with a break out of the July low (92.55) needed to develop psychological resistance at 93, 00.

Conversely, breaking through the November 23 low (92.02) would likely signal a resumption of the primary downtrend and propel the price towards the annual low (91.75).

– Written by Daniel Moss, Analyst for DailyFX

Follow me on twitter @DanielGMoss

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