The Strength of the US Dollar Indicates Market Confidence in Trump Victory

As financial markets anticipate a victory for Donald Trump in the upcoming US presidential election, the US Dollar Index (DXY) continues to rise. Trump’s proposed plans for deregulation in various sectors of the economy have bolstered market confidence in his potential win. Analysts at IG Bank note that the DXY has surpassed key resistance levels and is now on track to reach 104.00.

Federal Reserve’s Easing Expectations and Political Factors

  • Market participants are expecting a total easing of 150 basis points over the next 12 months, as Federal Reserve (Fed) officials closely monitor economic data.
  • The Fed’s approach to easing will depend on incoming data, with political uncertainties leading to a boost in the USD ahead of the election.

Daily Market Analysis: US Dollar Gains Ground

  • Wednesday’s economic calendar was quiet, with all eyes on Thursday’s Retail Sales figures for potential market impact.
  • A strong showing in Retail Sales could further strengthen the USD, though current expectations point to a modest monthly expansion.
  • Fed officials Daly and Bostic project one or two rate cuts this year, with market expectations slightly decreasing but remaining above 80% for two cuts by year-end.

Technical Outlook for DXY Index

Technical analysis suggests continued momentum for the DXY index, with some indicators signaling overbought conditions. The index has broken above the 100-day Simple Moving Average (SMA) and faces resistance at the 200-day SMA around 103.80. While buyers remain optimistic, a potential correction may precede further gains.

Key support levels for the DXY are at 103.00, 102.50, and 103.00, with resistances at 103.30, 103.50, and 104.00.

Understanding the Federal Reserve (Fed)

The Federal Reserve plays a crucial role in shaping US monetary policy, focusing on achieving price stability and full employment through interest rate adjustments. When inflation exceeds 2%, the Fed raises rates to control inflation, strengthening the USD. Conversely, lowering rates stimulates borrowing, impacting the Greenback negatively.

The FOMC, consisting of twelve Fed officials, evaluates economic conditions at eight annual policy meetings to make monetary decisions. In extreme scenarios, the Fed may implement Quantitative Easing (QE) to boost credit flow or Quantitative Tightening (QT) to reduce bond purchases.

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