Dollar On Watch Into Warsh's Speech Tomorrow
USD Higher on Data Beat
USD remains a little firmer today as traders await Fed chairman Warsh’s speech at Jackson Hole tomorrow. Yesterday, some better-than-forecast US data helped USD rebound off the week’s lows as Fed rate hike prospects came back into focus. Market pricing for a hike in September is currently around the 35% level, having been as high as 70% two weeks ago. However, given the three dissenting votes we saw in favour of a hike at the July FOMC meeting, there is plenty of uncertainty in the market, creating a high level of anticipation ahead of Warsh’s speech tomorrow.
Fed Credibility & Forward Guidance
Indeed, there is plenty of chatter going around concerning the credibility of the Fed under Warsh given his refusal so far to commit to any forward guidance and the confusion created by him at the post-meeting press conference in July. If Warsh again looks to remain aloof on monetary policy tomorrow this could fuel a sharp sell off in USD as traders deem the prospects of a September hike as lower. The same is true if Warsh makes any comments downplaying the likelihood of near-term tightening, perhaps referring to the Treasury’s recent bond buyback operations. However, USD could be in store for a rally if Warsh is seen acknowledging the hawkish support among Fed policymakers and offering any comments which suggest a near-term hike is viable.
Technical Views
DXY
The sell off in the index has stalled ahead of the 98.24 level with price now attempting to reclaim the 99.15 handle. With momentum studies skewed lower, however, risks of a further sell off are seen unless bulls can get back above the 100.18 level near-term and alleviate those downside risks. If we do push lower, 96.63 is the broader bear target to note.
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