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FOMC meeting on November 1, 2023, proved to be a pivotal moment in the year’s economic narrative. With inflation stubbornly hovering above the 2% target, the Fed took a cautious stance, opting to hold the federal funds rate steady at 5.50%. Jerome Powell, in his subsequent press conference, painted a picture of a central bank in careful deliberation, balancing the need to combat inflation without derailing economic progress.
The economy has shown signs of responding favorably to the Fed’s actions, with inflation receding modestly from 3.7% to 3.2% as reported last week, when dollar broke down sharply. However, the upcoming release of the FOMC minutes is now going to be a delayed data, so it may serve as a stark reminder of the challenges that remain. The detailed record of the November meeting could reiterate the Fed’s concerns and its commitment to achieving its inflation target, potentially shaking the recent market sentiment that led to a sharp decline in the dollar following the optimistic CPI data.
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That being said, I assume that the FOMC minutes may trigger a corrective wave, a so-called ‘wave four rally’ in the USD Index, providing an opportunity for dollar shorts from better levels. Or possibly the reaction will be muted, but still some rally is anticipated due to the Thanksgiving Holidays when flows change.
Also, keep in mind US yields have five down as well, so some pullback would certainly be welcomed. But do not get me wrong, I am bearish USD, but just aware of some retracement, which will hopefully bring some FX XXX/USD pairs to interesting buying levels.
USD index levels to watch; support at 103, resistance at 104.
Grega
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