US Data Improving

The US Dollar is trading a little lower today ahead of keenly awaited comments from Fed chairman Powell. The latest weekly jobs claims report today was seen dropping to 198k from 211k prior, marking its lowest level since January this year. On the back of stronger-than-forecast retail sales earlier in the week, market pricing for a further Fed hike between January-March has now risen to over 40%. USD has been well supported this week on safe-haven flows linked to the conflict in the Middle East and traders are monitoring the situation carefully with any escalation likely to drive fresh USD buying.

Powell on Deck

Ahead of Powell’s comments today we’ve heard from a slew of Fed speakers this week. Fed’s Waller told markets yesterday that he favours holding rates steady for now with more time needed to assess the economy before deciding if further tightening is needed. Fed’s Bowman didn’t make any explicit comments on policy in her remarks yesterday though did opine that inflation remains too high, suggesting her support for further tightening. Finally, Fed’s Williams voiced his support for keeping rates at restrictive levels for an extended duration citing the need to bring inflation down to 2% sustainably.

Hawkish Expectations

On the back of these comments, a hawkish skew from Powell today looks reasonable, which should see USD supported through the end of the week. USD bulls will be looking for Powell to reiterate the message given at the last FOMC that a further hike is still needed and that rates will remain higher for longer.

Technical Views

DXY

The rally off YTD lows has stalled for now into a test of the 107.57 level. While price has corrected, the market remains above the 104.95 level and while this level holds as support, the focus is on a continuation higher with 109.18 the next upside focus for bulls.