The dollar made its presence known across the currency markets on Tuesday, after hawkish comments from Federal Reserve Chairwoman Janet Yellen, bolstered expectations of another U.S. rate hike in 2017.
Investors who were anticipating higher U.S. interest rates, cheered after Yellen stated it would be “imprudent” to keep monetary policy on hold until inflation is back to 2%. Yellen also said that she thinks depressed inflation, witnessed in the United States this year, is “probably temporary and will likely reach the central bank’s golden 2% target over the next few years.” With hawkish statements from various Fed policy makers giving the thumbs up to higher U.S. rates, the greenback has regained some of its mojo. Dollar bulls are making an appearance, and with the Fed fund futures showing an 83% probability that they will raise rates in December, a further upside is on the cards.
It is remarkable how swiftly the greenback has returned to favor this week, but it underscores how sensitive the currency has become to monetary policy speculation.
From a technical standpoint, the Dollar Index bounced back to life on the daily timeframe, with bulls steamrolling through the 93.00 resistance level on Wednesday. A breakout above 93.50 may open the gates to 94.00.
Trump’s tax plan back in focus
A sense of anticipation can be felt across the financial markets ahead of President Trump’s tax proposal in Indiana later today. Although some information has been leaked that corporate tax may be lowered to 20% from 35%, market players are still likely to closely scrutinize the speech for further details on tax reforms. If legislation is passed this year, this should boost sentiment towards the U.S. economy and support the dollar further.
Currency spotlight – EUR/USD
The mighty euro extended losses against the greenback during Wednesday’s trading session, as sellers exploited the political uncertainty in Europe and the dollar staged a comeback. With the dollar roaring back to life amid rising rate hike expectations and political uncertainty in Europe pressuring the euro, could the EUR/USD bears make a return in Q4? Prices are currently trading below 1.1750 as of this writing, with the downside momentum likely to encourage sellers to target the 1.1680 support.
From a technical standpoint, the bullish trend on the daily charts was invalidated when prices breached and closed below the 1.18320 higher low. Sustained weakness under 1.1680 should open a path towards 1.1500.
Commodity spotlight – Gold
Sellers were given the green light to send gold prices lower on Tuesday, following Yellen’s hawkish comments at Cleveland. With expectations mounting over the Federal Reserve raising U.S. interest rates in December, gold, which is zero-yielding, is likely to come under renewed selling pressure. Bears remain in control below $1300, with further downside expected as the dollar continues to appreciate. From a technical standpoint, the yellow metal is coming under increasing selling pressure on the daily and weekly charts. Previous support at $1300 may transform into a dynamic resistance level, and may encourage a decline towards $1280.