US Dollar Pullback Pulls Back on Trump Threat to Punish Powell

US Dollar Talking Points:

• In yesterday’s webinar when talking about the S&P 500, I said that I expected Trump to hit the headlines with a threat to fire Jerome Powell, largely in response to the rally in the U.S. Dollar.
• It was less than 24 hours later that this arrived and that helped to prod a sell-off in the USD bullish trend that’s taken-hold so far in Q3. So, we can classify that as a pullback in another pullback, with the very real question as to whether bulls can retain control after a test of key support in the USD.
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The U.S. Dollar was beaten down in the first half of the year and it seems (to me, at least) that this is what President Donald Trump wanted to see. The currency spent the entirety of his first term in a rather consistent range, even through Covid and all the stimulus that came along with it; after topping the month that he was inaugurated in January of 2017.

In Q4 of last year, around his second election win, the US Dollar rallied to fresh multi-year highs but ever since his inauguration in January, it’s been a pain chain for USD bulls with a persistent push lower. In April, the currency went into an oversold state on the weekly chart which is a somewhat rare occurrence; and this is more amazing considering that the Fed wasn’t cutting rates or near cutting rates. And that’s become somewhat of a headline item so far this year.

Trump wants lower rates and he hasn’t been shy about it. The Fed, however, appears cautious to cut rates perhaps for a couple of reasons. One, and the reason they often cite, is the risk of inflation from the tariffs that Trump continues to talk up. The other that they haven’t been as vocal about was how inflation jumped after last year’s rate cuts, and that inflation jump combined with the first reason has helped the Fed to stay on hold so far this year.

Price action in the USD, however, has been decisively negative and as we came into Q3, the currency was oversold on both weekly and daily charts, a fact that made bearish continuation as a more challenging variable and that’s led into a couple weeks of strength, so far. Yesterday was particularly important as USD bulls broke through a key area of resistance, as taken from prior support, along with a bullish break of a falling wedge pattern. This is why I suggested in the webinar that we’d get a repeat of the Trump threat to fire Powell, which arrived less than a day later.

U.S. Dollar Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

USD Shorter-Term

At this point I think there could remain bullish potential in the USD, but the key now will be buyers defending support, like what’s shown so far today. There’s higher-low support potential at 98.13-98.20, as well as the 98.01 prior swing. The longer-term Fibonacci level at 97.94 is also of interest, as this is what held the lows a day earlier around the CPI release as bulls were taking charge of near-term trends.

U.S. Dollar Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist