Dollar Drubbed on T-Bill Purchases Despite Fed’s Hawkish Cut

While it was only an announcement to purchase Treasury Bills and framed as a ‘reserve management’ move, the fact that the Fed is so willing to jump back into Treasury purchases illustrates how they won’t hesitate to use open market operations to accomplish their aims, even if doing so in an unconventional manner.

This keeps gold as one of the more attractive venues as the metal remains more than 110% above last year’s low, and I wrote about that ahead of today’s meeting.

US Dollar Drops on Hawkish Cut

The Fed had a curveball at today’s rate decision with the announcement of Treasury Bill purchases, which wasn’t expected until next year, perhaps as early as April. This was largely framed as a reserve management move but the fact that the Fed will be pushing into the bond market so quickly after ending QT reminds markets that the Fed can and will use open market operations when needed.

On the forecast front, the Fed largely held with what they said in September and this wasn’t as dovish as what rates markets were pricing in; but the fact that they pushed back into Treasury purchases buffered that disappointment and brought an initial reaction of USD-weakness.

But it was during the press conference when matters really began to shift as Powell said that he estimated that the actual number for the job market could be closer to a loss of 20,000 jobs per month. When that statement hit the wires the USD broke down and has continued to sell-off, helping to push gold prices higher and towards a re-test of that 4250 level.

In the USD, there was a building bear flag formation ahead of the announcement and that formation gave way to breakdown with DXY pushing right down to next support at 98.60.

US Dollar Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

US Dollar with Scope

The daily chart of USD now shows a lower-low with today’s break but the big question at this point is whether EUR/USD bulls can continue to stretch that trend; and for GBP/USD, the pair I’ve been focusing on for USD-weakness, there remains bullish structure following yesterday’s hold of higher-low support right at the 1.3287 level.

US Dollar Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD

I still think the key for USD trends rests with the Euro and in EUR/USD, we have a bullish breakout to fresh monthly highs. I still prefer GBP/USD, but given this bullish test in EUR/USD that can change as there’s now an open door for both USD bears and EUR/USD bulls to take a shot.

For next resistance, we’re already testing above a big price at 1.1686, and above that is 1.1717 and then 1.1748. For higher-low support structure, it’s the prior zone of resistance at 1.1652-1.1669.

EUR/USD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

GBP/USD

In GBP/USD, the pair is at a fresh high following yesterday’s support hold at 1.3287. I still favor Cable over EUR/USD for bearish USD plays, but if we do see EUR/USD bulls make a push through 1.1748 that can begin to change. As I said in yesterday’s webinar, Isabel Schnabel opening the door for possible ECB rate cuts puts the bank at odds with the Fed so there’s at least a fundamental backdrop for such a shift, although it hasn’t quite shown in price yet.

On that front, EUR/GBP remains at a key spot of support from the setup looked at in the Monday article.

GBP/USD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY

If looking to fade the sell-off in the USD, USD/JPY can be of interest. The pair had a strong breakout going through yesterday but with this run of DXY weakness, the pair has pulled back quite a bit. I went over this scenario in yesterday’s webinar highlighting three spots of support in the pair with 156.20 followed by 155.54 and then 155.00.

A prolonged bout of USD-weakness could be a relief for Japanese policymakers ahead of next week’s highly-expected BoJ rate hike, but this again puts the focus on other Yen-pairs such as GBP/JPY and EUR/JPY which may not elicit as much attention as USD/JPY from the Japanese Finance Ministry.

But, for now, USD/JPY is pulling back and the bullish structure on the daily remains in-place.

USD/JPY Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.