PCE Inflation And Fed Minutes Could Further Feed The Dollar Bulls
XM Group | Nov 23, 2021 07:07AM ET
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It seems that the dollar can do no wrong lately as regardless of whether Treasury yields are going up or down, the US currency is still the most appealing for traders. All of America’s main competitors (with the exception perhaps of Canada), are caught up in some kind of a storm one way or another. Hence, even the prospect of tighter monetary policy isn’t scaring investors as they see the US economy being the only one that can easily withstand higher interest rates.
Barrage of pre-Thanksgiving data on the way
Wednesday’s data deluge will likely reinforce the strong fundamentals underlining the positive outlook. Durable goods orders are expected to have edged up 0.2% m/m in October after dipping in September, while the second reading of Q3 GDP could see growth being revised up slightly from 2.0% to 2.2% on an annualized basis.
In a further encouraging sign that growth momentum got into a higher gear at the start of the final quarter, personal consumption is projected to have jumped by 1.0% m/m, accelerating from the prior 0.6% rate. Personal income likely improved too, rising by 0.2% m/m after dropping 1.0% in the previous month.
However, if sellers were to gain the upper hand, not so much because the data disappoints or the minutes are surprisingly dovish, but rather because sentiment towards other currencies improves and profit takers jump in, the 96.0 level would be at risk. The nearest key support to the downside would probably be found at the 200% Fibonacci extension of 95.84 followed by the 161.8% Fibo of 95.35.
That’s not to say that neither the economic pointers nor the minutes don’t pose a downside risk for the dollar, but given the recent evidence, any disappointment from the data or the tone of the Fed’s discussion on tapering are likely to be minor. Furthermore, now that the question mark about Powell serving a second term as Fed Chair has been resolved and Lael Brainard is out of the frame, the odds of dovish surprises from the Fed have been reduced somewhat.
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