DXY: Fed plans and dollar prospects


As we noted in our yesterday's review, there are growing fears in the market that the rapid tightening of monetary policy by the world's largest central banks, which so far cannot stop accelerating inflation, will lead to recession and stagflation in the global economy. These fears lead to an increase in demand for a safe dollar, which, in turn, puts pressure on stock markets and commodity currencies. As you know, CAD quotes are very sensitive to the dynamics of oil prices, since Canada is a major supplier of oil to the world market, primarily to the United States.

 In view of this, today market participants who follow the quotes of the Canadian dollar and the USD/CAD pair will pay attention to the publication at 15:00 (GMT) of the weekly report of the US Department of Energy with data on commercial stocks of oil and petroleum products.

Oil inventories in the US are expected to decline (by -0.569 million barrels after rising by 1.956 million barrels a week earlier). If the decline in oil inventories is stronger, then oil prices may rise, which will also support the Canadian dollar.

Also, volatility in USD/CAD quotes may increase today at 12:30 (GMT), when the reports of the Office of Statistics of Canada and the US Department of Labor with data on the number of unemployed receiving unemployment benefits will be published.

Brent Chart

But the main attention of market participants during the American trading session will still be focused on the speech of Fed Chairman Powell, which will begin at 14:00 (GMT).

Speaking in the Senate yesterday on his semi-annual monetary policy report, Powell said "we (at the Fed) will never rule out a rate hike of any size" and "will take whatever steps are necessary to restore price stability".

According to Powell, the goal of the Fed is a "soft landing of the economy". Achieving this "will be very difficult", but the Fed cannot "fail to bring down inflation".

Today, Powell will continue his speech in Congress, and market participants will closely monitor its progress to catch additional signals from Powell regarding the Fed's plans to curb inflation.

“Raising interest rates is painful, but it is the tool we have to bring down inflation", but “the biggest pain will be if we allow this high inflation to continue”, Powell said.

DXY Chart

As for the dynamics of the US dollar and the DXY dollar index, they are growing again today. So, at the time of publication of this article, DXY futures are traded near 104.35 mark, maintaining positive dynamics and a trend towards further growth. A breakdown of the local resistance level and the maximum since January 2013, reached last week at around 105.56, will create prerequisites for growth towards multi-year record highs of 121.29 and 129.05, achieved in June 2001 and November 1985, respectively.