Market Analysis

The greenback breaks higher as U.S rate cut fears subside

The U.S Dollar index climbed to its highest trading since June 2017 on Tuesday, as fears about a potential interest rate cut from the U.S Federal Reserve this year eased. U.S earnings season has also seen better than expected results for the first quarter, while recent economic data from the United States still points to a relatively strong economy.

Traders and investors are also moving into the greenback as other economies around the globe continue to struggle with growth problems. The euro currency has been shunned by investors, with the EUR/USD pair now trading back towards the 1.1200 as Europe suffers from sluggish growth and stagnant inflation.

The British pound has also been sliding against the US Dollar since EU leaders granted an extension of Article 50 until October 31st this year. Other currencies have also been moving to multi-month trading lows against the U.S Dollar, with the USD/CHF pair yesterday hitting its highest trading level in more than two years.

The U.S Dollar now faces two key tests over the next seven days, firstly, the release of gross domestic product data from the first fiscal quarter of 2019. Most economists predict that the United States economy grew 1.8 percent during the first three months of this year compared with the 2.2 percent growth seen during the same period last year.

If the data comes in much weaker than expected, the U.S Dollar could start to give back some its recent strong gains against other G10 currencies. The other key test for the greenback will be on May 1st when the Federal Open Market Committee decides on U.S interest rates.

While most market participants believe that the FOMC will keep rates on hold next Wednesday, the monetary policy statement from the FOMC after the interest rate decision will be crucial for the direction of the U.S Dollar. Federal Reserve Chair Jerome Powell will also be expressing his latest thoughts at the press conference after the rate decision.


USD/CHF Daily Mountain Chart Source-Activtrader Platform

USD/CHF Daily Mountain Chart | Source: ActivTrader


The USD/CHF pair has now staged a major upside technical breakout, with the daily chart showing an inverted head and shoulders pattern that could take the risk-sensitive pair towards the 1.0600 level in the near-term. Major technical resistance is now located at the 1.0280 and 1.0340 levels, while key near-term technical support is found at the 1.0150 level.


Written by Nathan Batchelor, External Analyst

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