US Dollar Index Nosedives After Fed Cuts Rate Hike Plans for 2019

 | Mar 22, 2019 13:39

  • The Fed re-affirms their patient stance of zero rate hikes for 2019
  • The Fed highlighted a weakening global economy and a softening inflation rate as reasons for the patient outlook on future rate hikes
  • The US Dollar Index was down 0.47% and has fallen 215pips in the last nine trading days

    • A slowing of economic conditions in the US and abroad have provided the backbone to the Fed’s decision to scale back their rate increases for 2019.

    Jerome Powell, the Fed Chairman, has once again confirmed the Fed’s patient stance, suggesting ‘Patient means that we see no need to rush to judgment.’

    In addition to squashing any thoughts of a rate hike in 2019, the Fed has signalled the possibility of just one rate hike in 2020.

    Also, the Fed will start tapering the reduction of its holdings of Treasury bonds in May, down from $30 billion to $15 billion per month.

    h2 GDP and inflation projections/h2

    Along with their patient stance on rate hikes, the central bank provided guidance on their GDP and inflation levels, pulling back from a growth rate of 2.3% to 2.1%, and cutting their inflation forecast from 1.9% to 1.8%.

    For the time being, the Fed will need to see more robust economic conditions, stronger employment conditions and a rise in interest rates before they firm up their rate-hike policy.

    h2 Key technical levels to watch on the USD Index/h2

    There is still a long-term ascending triangle building on the US dollar index with prices testing the downside overnight.

    Last night’s closing price is sitting right on the key support line and bulls will be watching this level closely.

    Apart from the patient guidance driving the US dollar lower, those who opened a long position around the 95.80 level may have been exiting overnight. This would have added to the downward pressure seen.

    Recently the stochastics has been oscillating between overbought and oversold perfectly, and the current price action lends itself to a potential reversal. Traders will be on the lookout for a solid risk-reward opportunity here for either a reversal trade or a breakout-to­-the-downside trade.