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Asset Watch
Wednesday, September 6, 2023
The US dollar index (DXY) rallied yesterday to a six-month high at 104.90. This surge is largely attributed to the expectation that the Federal Reserve may revise upward its growth projections for the US economy in 2023. This revision is expected to be revealed at the upcoming September meeting. The US economy has exhibited remarkable resilience, particularly as its growth has remained robust despite the Federal Reserve’s quantitative tightening efforts, which have involved reducing its balance sheet by $1 trillion thus far.
Moreover, the US jobs report for August was seen as favorable for both the US Central Bank and the markets. It indicated a decline in the number of jobs added, coinciding with a decrease in the average hourly wages. This reduction in wage growth is seen as potentially mitigating inflationary pressures.
Conversely, certain officials from the European Central Bank have warned against underestimating the possibility of the ECB hiking interest rates at its upcoming meeting this month. They’ve indicated that, at a minimum, the ECB’s aim is to bring inflation levels in line with its 2% target by 2025. The Central Bank is set to release its economic forecasts for growth and inflation at this month’s meeting. Although European inflation levels dipped to 5.3% due to declining energy prices, there is the potential for an uptick as oil prices rebound. Brent crude oil, for instance, has recently exceeded the $90 per barrel mark, reaching its highest levels in multiple months.
Chart source ADSS Platform
On August 21, the EUR/USD closed below the 50-day simple moving average and since then the pair retreated by nearly 2%. The price dropped to an eight-week low at 1.0707 then closed yesterday in the red below 1.0730 indicating that bears were still in charge, and they may press towards 1.0559. That said, the support levels located at 1.0657 and 1.0629 should be watched closely.
On the other hand, a daily close above the 1.0730 level signals the bears’ reluctance and this may encourage bulls to join the market and rally the price towards 1.0873. However, the resistance levels residing at 1.0760 and 1.0831 should be monitored along the way.
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