VOT Research Desk
Nov 3
Market Analytics and Considerations
Less aggressive rate increases – higher peak rate.
Focus is on the US ISM non-manufacturing PMI.
Probable break of a descending wedge on the graph.
Fundamental backdrop in USD
Following last night’s Federal Reserve interest rate move, the Dollar Index (DXY) increased, raising the Fed funds lending rate by 75 basis points to 3.75–4%. Jerome Powell, the chairman of the Federal Reserve, reaffirmed the Fed’s determination to combat ingrained price inflation while also indicating that the magnitude of upcoming rate hikes will probably be decreased but at a higher end point. Money markets peaked at 5% in May 2023, but as of this morning, they have jumped to 5.133%, which startled markets considerably as a pre-announcement.
The sustained rate increases, even if they are less pronounced, will not be good for Emerging Market (EM) currencies since they will lessen the appeal of their typical carry trades because the majority of such economies are unable to maintain abreast with the rate increases in the U.S.
The U.S. economy’s main engine, the ISM services PMI for October, is coming later today. A services beat would probably provide additional support and encouragement for the dollar after Monday’s manufacturing print. The surprising increase in ADP employment numbers before the FOMC meeting increased the significance of Friday’s NFP data.
Bulls are challenging the emerging falling wedge chart pattern on the daily DXY chart after passing the pivotal 112.00 level. Depending heavily on basic economic data, a sustained run up to future resistance zones could be sparked by a confirmation daily candle closing above the wedge barrier (NFP on Friday).
It demonstrates bears protecting the 109.37 level of the 76.4% Fibonacci (calculated from the high in July 2001 to the trough in March 2008). Indicators of bearish dispersion in the Relative Strength Index (RSI) point to an imminent reversal. This might coincide with hardline ECB rate decisions on Thursday, but over the long run, it’s hard to envision a break in the upward trend.
Resistance levels:
113.69 – recent swing high
Wedge resistance
Support levels:
112.00
20-day EMA
111.00
