During the past week, US dollar recovered after the initial dip. There were some minor changes in the Federal Reserve’s language compared to June: the acknowledged improvement of the labor market. Although American GDP for Q2 came slightly below expectations, US economic growth was solid in April-June. In addition, there was a positive revision of the Q1 growth figures, while and consumption picked in the next 3 months.As a result, many traders expect the Fed to start raising rates as early as in September.
In our view, the Fed was cautious, but optimistic and did not mention Chinese problems – a hawkish thing. The possibility of September rate hike did increase, although the chance is still around 50:50. There is no common message from American statistics: non-farm payrolls (NFP) are at the positive territory for the longest period ever, but wage growth lags and business investment remains weak. The fact that the Fed has voiced its intention to start raising rates earlier, but making the increases smaller, is in favor of USD bulls.
The market’s view of the Fed and US dollar will depend on the upcoming economic data. If NFP comes above 200K and unemployment falls to 5%, expectations of a hike in the first autumn month will strongly increase.
Positive expectations will likely support USD in the coming week. However, its gains may be limited until Friday as the currency is overbought and the Fed’s September meeting is still rather far away.
US dollar index Technical Strategy:
Support: 11920, 11840, 11720
Resistance:12050, 12150, 12290