A wave of risk aversion is sweeping through the FX market today, with Asian equities failing to gain support from the Chinese earnings season. The impact of Federal Reserve Chair Jay Powell’s recent speech is also fading, leading to a modest rebound in the DXY dollar index. ING’s FX strategist Francesco Pesole believes that another small increase in the greenback against pro-cyclical peers may be on the horizon.
Potential for DXY to Break and Find Support Above 101.0
Despite the market’s expectations of easing by the year-end, Powell’s rate cut guidance and the reaction to his speech at Jackson Hole may have been overblown. While a major dollar rally is not predicted, the technical outlook and rate differentials suggest a slightly positive bias for the USD in the short term.
Market sentiment plays a key role in the dollar’s movement, with a potential major drop requiring a full acceptance of a US recession. The absence of significant US data releases this week could benefit the greenback, with only a speech by Fed’s Raphael Bostic on the agenda. Bostic’s hawkish-leaning stance may not further the easing narrative, potentially leading to a break in the DXY index and finding support above 101.0 in the coming days.
Analysis:
The FX market is currently experiencing risk aversion, impacting the DXY dollar index. Despite market expectations of easing, recent events have led to a rebound in the greenback. While a major rally is not expected, technical factors and rate differentials suggest a slight upside for the USD in the short term. The absence of key US data releases this week could further support the dollar, potentially leading to a break and support above 101.0.