US Dollar rips higher on economic data, Fed speakers
Today’s US ISM Manufacturing PMI and hawkish Fed speakers were bullish for the US Dollar. Will the DXY continue to move higher?
Share this:
The ISM Manufacturing PMI for May in the US was 56.1 vs 54.5 expected and an April reading of 55.4. Better data was seen in the production, new orders, and inventory components. Although price pressures eased slightly, supply chain issues and pricing were still the main issues that worried businesses. Overall, the beginning of month ISM data was stronger than expected. Good news in the economic data gives the Fed more confidence to raise rates, and therefore, sends the US Dollar higher.
In addition, the Fed hawks were out in force today. First up was former NY Fed President William Dudley who penned a Bloomberg Op-ed piece and said that “the Fed needs to tighten financial conditions, and the only way to do that is to hike interest rates by a substantial amount”. In addition, the Fed’s Waller said that he supports tightening policy by another 50bps for several meetings. He also said that “I am not taking 50bps hikes off the table until I see inflation coming down closer to our 2% target”. Finally, it was the ultra-hawkish Bullard who was on the wires later in the day. He noted that the current US macro situation is straining the Fed’s credibility on inflation and that inflation expectations could become unmoored without Fed action. Finally, Bullard said that 3.5% for Fed Funds rate is a good minimum for how high policy rates need to go. These comments all suggest that today’s Fed speakers are looking for higher rates, and therefore, a higher US Dollar.
The DXY on a daily timeframe broke above an upward sloping channel on April 6th and hasn’t traded below it since. Price rallied into a near 20-year high at 105.00 on May 13th as the RSI was in overbought territory and diverging with price. Price then pulled back to a near-term low on May 30th at 101.30, which was also the 50 Day Moving Average and the 50% retracement level from the lows of March 31st to the highs on May 15th. Yesterday, price began moving higher however the DXY exploded higher today, taking out resistance at 102.35.
Source: Tradingview, Stone X
On a 240-minute timeframe, the DXY was halted at resistance near the 38.2% Fibonacci retracement level from the high of May 13th to the low on May 30th at 102.72. Next resistance is 103.15/19, which is a confluence of horizontal resistance and the 50% retracement from the same timeframe. Above there, price can run to the 61.8% Fibonacci retracement level at 103.59. First support is at the previous resistance level of 102.58. Below there, price can fall to the May 31st highs at 102.17, then the May 30th lows at 101.30.
Source: Tradingview, Stone X
Today’s US ISM Manufacturing PMI and hawkish Fed speakers were bullish for the US Dollar. Will the DXY continue to move higher? It may depend on Non-Farm Payrolls on Friday. If the print is stronger than expected (+320,000), the Fed may feel emboldened to raise rates at a quicker pace when members gather on June 15th!
The ISM Manufacturing PMI for May in the US was 56.1 vs 54.5 expected and an April reading of 55.4. Better data was seen in the production, new orders, and inventory components. Although price pressures eased slightly, supply chain issues and pricing were still the main issues that worried businesses. Overall, the beginning of month ISM data was stronger than expected. Good news in the economic data gives the Fed more confidence to raise rates, and therefore, sends the US Dollar higher.
In addition, the Fed hawks were out in force today. First up was former NY Fed President William Dudley who penned a Bloomberg Op-ed piece and said that “the Fed needs to tighten financial conditions, and the only way to do that is to hike interest rates by a substantial amount”. In addition, the Fed’s Waller said that he supports tightening policy by another 50bps for several meetings. He also said that “I am not taking 50bps hikes off the table until I see inflation coming down closer to our 2% target”. Finally, it was the ultra-hawkish Bullard who was on the wires later in the day. He noted that the current US macro situation is straining the Fed’s credibility on inflation and that inflation expectations could become unmoored without Fed action. Finally, Bullard said that 3.5% for Fed Funds rate is a good minimum for how high policy rates need to go. These comments all suggest that today’s Fed speakers are looking for higher rates, and therefore, a higher US Dollar.
Everything you need to know about the Federal Reserve
The DXY on a daily timeframe broke above an upward sloping channel on April 6th and hasn’t traded below it since. Price rallied into a near 20-year high at 105.00 on May 13th as the RSI was in overbought territory and diverging with price. Price then pulled back to a near-term low on May 30th at 101.30, which was also the 50 Day Moving Average and the 50% retracement level from the lows of March 31st to the highs on May 15th. Yesterday, price began moving higher however the DXY exploded higher today, taking out resistance at 102.35.
Source: Tradingview, Stone X
Trade the DXY now: Login or Open a new account!
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
On a 240-minute timeframe, the DXY was halted at resistance near the 38.2% Fibonacci retracement level from the high of May 13th to the low on May 30th at 102.72. Next resistance is 103.15/19, which is a confluence of horizontal resistance and the 50% retracement from the same timeframe. Above there, price can run to the 61.8% Fibonacci retracement level at 103.59. First support is at the previous resistance level of 102.58. Below there, price can fall to the May 31st highs at 102.17, then the May 30th lows at 101.30.
Source: Tradingview, Stone X
Today’s US ISM Manufacturing PMI and hawkish Fed speakers were bullish for the US Dollar. Will the DXY continue to move higher? It may depend on Non-Farm Payrolls on Friday. If the print is stronger than expected (+320,000), the Fed may feel emboldened to raise rates at a quicker pace when members gather on June 15th!
Learn more about forex trading opportunities.
Related tags:
Open an account in minutes
Experience award-winning platforms with fast and secure execution, and enjoy tight spreads from 0.5 pts on FX and 0.3 pts on indices.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
RBA delivers 25bp hike, Bullock now the main event
The RBA delivered the expected 25bp hike, but Bullock’s press conference now looms as the bigger volatility risk for AUD/USD and the ASX 200.
Gold outlook: XAU/USD hammered, stretched and vulnerable to a sharp rebound
Gold is getting hammered for solid fundamental reasons, but history suggests extreme four-hourly oversold conditions can produce violent countertrend rallies.
EUR/USD, USD/JPY Outlook: Oil, yields and an FX identity crisis
Crude oil is setting the tone across rates and FX, leaving EUR/USD vulnerable and USD/JPY caught between higher Treasury yields and the growing threat of intervention
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.forex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.