DOLLAR RISES BUOYED BY HAWKISH STATEMENT BY FED CHAIR
The dollar rose slightly today after the statement by the Federal Reserve chair, Jerome Powell. On Friday, at the Jackson Hole Symposium, the chair reiterated his bullish views of the economy and emphasized on the need for more rate hikes. This is against the thinking of the US president who has questioned the importance of the interest rate hikes. The president believes that the hikes will lead to a crash of the economy. History may prove him right. All the major recessions in the country have happened during periods when the Fed is hiking rates. However, maintaining the rates very low presents risks for the Fed because it would lack the tools to intervene in case of a recession. Some Fed officials have also started talking about the need for hikes, which would lead to an inverted yield curve.
Trade talks between Mexico and the United States are accelerating, with a deal expected to be made today. On Saturday morning, the US president sent a tweet promising that a big announcement will be likely. The news is a relief to many who are pro-global trade who feared that the US president would move to ‘cancel’ the deal. Concerns increased when he exited the Paris Climate Agreement and the Joint Comprehensive Plan of Action (JCPOA). The two countries are negotiating together with Canada expected to re-enter the negotiations soon afterward. The final deal is expected in September or before the US mid-terms.
The Japanese Yen strengthened slightly against the US dollar. This came after the US president cancelled a planned meeting between Mike Pompeo and his North Korean counterpart. The president cited the slow progress after the Singapore meeting. There have been concerns about the role of China in North Korea especially after the Trump administration initiated a trade conflict. With the Chinese president set to go to North Korea soon, many believe that his administration will start trading with the country.
The EUR/USD was little moved today even after positive sentiment data from Germany. The pair is trading at 1.1610, which is lower than Friday’s high of 1.1653. It is also an important resistance level as shown below. The longer-term (50) EMA and the shorter-term (25) EMA crossed yesterday, which is an indication that the pair could continue moving up. If it continues moving up, it will likely test the 1.1700 support. If it moves lower, it will test the 1.1500 level.
Last week, the USD/JPY pair rose from a low of 109.77 and reached a weekly high of 111.48. Today, the pair eased slightly and is currently trading at 111.12. This level is at the 23.6% Fibonacci Retracement level and on the hourly chart, it seems like the handle part of the cup and handle pattern. It is also at the middle level of the Bollinger Bands indicator. Further downward movement will see the pair test the 111.0 level while further upside will see it test the 111.35 level.
The USD/CAD pair jumped after the news of a deal between the US and Mexico. It is now trading at 1.3065, which is in line with the 25 and 50 Exponential Moving Average (EMA). The MACD on the four-hour chart is moving sideways, trying to cross the important zero line. If it does this, the pair will likely continue the upward movements and attempt to test the 1.3130 resistance level.