"Trump Trade" Stalls, Rate Cut Expectations May Weigh on USD

Summary:

It's almost certain the Federal Reserve will signal a clear rate cut at this policy meeting. Meanwhile, with the "Trump Trade" stalling, rate-cut expectations may gradually dominate the US dollar in the days ahead.

Sell USDX

EXP

EXPIRED

104.734

ENTRY

103.000

TGT

105.230

99.460 +0.330 +0.33%

Point

EXPIRED

103.000

TGT

104.130

CLOSING

104.734

ENTRY

105.230

Fundamentals

The US dollar index still oscillated in a narrow range for the sixth trading day on Friday. The moderate rise in PCE was broadly in line with expectations. Although the MoM data lifted slightly, it was generally within the acceptable range of the market. Overall, while the data does not support an immediate Fed rate cut, it is not enough to change expectations for a rate cut in September. As a result, the market reaction has been muted.

This is the last key data before the Fed's interest rate in July, and the US will release non-farm payrolls data the day after the interest rate decision. For the Fed to act in July now, at least two of the three conditions need to be met: a continued plunge in US stocks, an over-expected cooling in PCE inflation, and worse non-farm payrolls. Although next week's US non-farm payrolls data will be released after the Fed's interest rate decision, the Fed was informed of the data before the decision. So, the Fed can make a judgment based on complete information.

Therefore, it is almost certain that there will be no rate cut in July. Wall Street's baseline assumption that Fed Chair Jerome Powell next week will at least signal a rate cut in September. If this is the case, it may be seen as "slight bullish news", or "major bad news" if it is not. However, several analysts believe that the annual meeting of global central banks at the end of August is the best time for the Fed to signal rate cuts.

In addition, the "Trump Trade" seems to have encountered some trouble in the past few trading days. According to a New York Times and Siena College poll, Trump and Harris have 48% and 47% approval ratings among potential voters, respectively.

Judging by the polls alone, the chances of Trump winning have been greatly reduced, regardless of Harris's real approval ratings and whether or not Democrats "campaigned" for Harris. This is another big variable for the market, and some Wall Street investment banks are even considering abandoning the "Trump Trade". If Trump's approval rating is overtaken by Harris, there will be a major reshuffle in global markets. This may also be one of the reasons for the fluctuations in the US dollar index, as the market is on the sidelines.

Finally, Wall Street Journal reporter Nick Timiraos, who has "disappeared" for 10 days, finally showed up and shared his view. In his latest article, he wrote that "while Fed officials are unlikely to cut rates next week, the situation of inflation and the labor market will lead to a rate cut signal at the September meeting." His point was clear and he used a lot of "conclusive" wording. With only three days left before the Fed meeting, the author knows better than anyone what this article means for financial markets. Therefore, he didn't dare to post it if he wasn't completely sure.

Therefore, it's almost certain the Federal Reserve will signal a clear rate cut at this policy meeting. Meanwhile, with the "Trump Trade" stalling, rate-cut expectations may gradually dominate the US dollar in the days ahead.

Technical Analysis

In the daily chart, the US dollar index is currently trading in a narrow range of 104.10-103.70. The price is hovering near the 0.382 Fibonacci retracement level. If it can hold above this support level, it will rise towards the 0.236 Fibonacci retracement level in the short term. Otherwise, it may fall to the previous low of around 103.0, which is also the bottom of the descending channel. If the support is broken again, the US dollar index will start a new round of declines.

Indicators: Both the baseline and the conversion line in the Ichimoku Kinko Hyo ran horizontally, but their levels reversed compared to the common situation. This means that there will be a quick rise for the USDX in the short term. After that, it will begin to fall.

"Trump Trade" Stalls, Rate Cut Expectations May Weigh on USD_1

Trading Recommendations

Trading Direction: Sell

Entry Price: 104.734

Target Price: 103.000

Stop Loss: 105.230

Support: 104.400/103.800/103.500

Resistance: 104.670/105.000/105.700

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Jason

Analysts

I have an in-depth study of fundamentals, especiaslly for the US dollar market. I'm good at short and medium term trading by virtue of my profound financial theoretical knowledge and extensive practical experience.

Rank

Articless

433

Win Rate

42.81%

P/L Ratio

1.58

Focus on

USDX, EURUSD, XAUUSD

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