Dollar strength continues as Fed officials warn on need for stimulus
US stocks erased earlier gains yesterday as investors reacted to statements by Federal Reserve officials on the need for additional stimulus. The S&P 500 lost 2.4% while the Nasdaq composite lost more than 3%, led by a 10% decline in Tesla shares. In a statement to Congress, Jerome Powell said that congress will need to do more to support the US economic recovery. In a separate statement, Richard Clarida, the Fed’s vice chairman said that the economy was recovering robustly but that it was still in a deep hole. These statements came even as data suggested that the US economy was starting to slow down partly because of a lack of stimulus. In a report yesterday, Markit said that the services PMI declined from 55.0 to 54.6.
The Swiss franc is little changed against the US dollar as traders wait for the decision by the Swiss National Bank (SNB) that will come out at 07:00 GMT. With the Swiss economy making a steady recovery, analysts believe that the bank will leave rates unchanged at -0.75%. However, due to the recent strength of the franc, the bank could signal a willingness to do more to support the economy. The decision will come a day after the New Zealand central bank signalled that it was willing to push rates below zero. Other central banks that will deliver their rates decision today are the Turkish central bank, Mexican central bank, and Norges bank.
The economic calendar will have some key events today. In Germany, we will receive the business expectations and assessment data from the Ifo Institute. In Hong Kong, the government will release its import and export data while in Turkey, the central bank will deliver its rate decision. This decision will come at a time when the Turkish lira has fallen to its lowest level against key currencies. In the United States, Jerome Powell will continue his testimony in Congress. We will also receive the new home sales data from the US.
The EUR/USD declined to a low of 1.1650 as investors turned to the safety of the US dollar. On the four-hour chart, the pair managed to move below the 38.2% Fibonacci retracement level. It is also below the 50-day and 25-day EMA and still along the lower line of the Bollinger bands. Also, the Relative Strength Index (RSI) has dropped to the oversold level of 30. Therefore, it seems like bears are in total control, which means that the pair is likely to continue falling as bears aim for the 50% retracement level at 1.1588.
The GBP/USD pair dropped to a low of 1.2719 as investors reacted to the rising number of COVID cases in the UK. On the four-hour chart, the price is slightly below the 25-day and 50-day exponential moving averages. Also, it seems to be forming another bearish consolidation pattern. The pair is slightly above the lower line of the Donchian channel. Therefore, the pair is likely to continue falling as bears aim for moves below 1.2700.
The AUD/USD pair dropped to an intraday low of 0.7050, which is the lowest it has been since July 21. On the four-hour chart, the pair is significantly lower than the 20-day and 10-day EMAs. Also, the Relative Strength Index (RSI) has dropped to a low of 20, which is the lowest it has been in years. The pair is likely to continue falling as bears attempt to move below the support at 0.7000.