The dollar received a major blow from the fed
The American currency Wednesday night was hit by a Backup System. The dollar index fell by 0.9% in response to statements by Powell that the rate is slightly below the neutral level. This is not the first signal from the fed in recent weeks about the change of mood. Earlier we heard hints of willingness to take a pause in raising interest rates next year.
Recall, then, Powell warned that the fed may raise rates above the “neutral level”. Such a drastic change in the Central Bank’s position is strongly influenced by the dollar, but, more important, in the future could exert serious pressure on the prospects of other markets.
Explain the weakening of the USD is favorable, for example, for the stock market. So, the key US indices gained following the environment 2.3%-2.5%, followed by expectations of a softer approach from the fed. As is often the case, is not so much the information itself, how the perception of traders. In this case, we saw that in October, market participants have interpreted the tone of Powell as too strong. Now, however, called the possible break “the sharp turn in the rhetoric,” although recent quarters in forecasts of the FOMC referred to “2-3 increases in 2019, compared to four in 2018”.
A similar situation we saw yesterday when it was announced that the current rate is at 2.00% -2.25% “barely below” the neutral level – and this is the range of 2.5%-3.5%.
If you look in details, it’s no more than a statement of fact which does not negate the October comments. It turns out that the markets saw what they wanted to see. Perhaps they were waiting for a reason for the dollar sales from the local maxima. Well, they succeeded: the U.S. currency approached the lower boundary of the trend on growth. Falling under this level is the ability to permanently mark a reversal to the downside. This is confirmed by the technical analysis, which is clearly visible divergence between the price chart and RSI.
Besides, we already wrote about the fact that for pairs EURUSD and GBPUSD also formed a reversal. The trend in the weakening of the Euro slowed, and EURUSD came out from the corridor down. At the same time, the British pound receives support from buyers on dips in the area of $ 1.27.