The Dollar Lost Another Portion of Its Positions

[Ben Graham]

Yesterday, the U.S. dollar once again faced a minor sell-off. A series of speeches by Federal Reserve representatives also failed to provide support for the dollar, as markets appear to have grown accustomed to the tone of their statements.

Yesterday's interviews with senior Fed officials Beth Hammack and Austan Goolsbee confirmed that inflation is still viewed as a serious threat. The lack of new inflation data due to the government shutdown has only heightened concerns, as it makes it difficult to accurately assess the current economic situation and make well-informed decisions.

Despite progress in reducing inflation over recent months, both Hammack and Goolsbee emphasized that the Fed needs to see a sustained trend toward the 2% target before considering any easing of monetary policy.

"I remain concerned about high inflation and believe policy should stay focused on overcoming it," said Hammack.

The head of the Federal Reserve Bank of Cleveland also noted that, in her assessment, inflation will not reach the Fed's 2% target until a year or two after 2026, aligning with the average forecast of 19 Fed members. This means the Fed is unlikely to hit its target for much of the decade and risks entrenching higher inflation in the economy.

Meanwhile, the approach outlined yesterday by Governor Michael Barr highlighted the need to balance inflation control efforts with maintaining labor market stability. This is particularly important since overly aggressive anti-inflation measures could negatively affect employment and economic growth.

It is worth recalling that, although investors currently see a high probability of a rate cut in December, Fed Chair Jerome Powell has cautioned against drawing premature conclusions. His recent remarks indicate that the Fed will continue to make decisions based on incoming economic data, carefully weighing the risks and benefits of each move. Thus, the future of U.S. monetary policy remains dependent on economic developments and the mood within the Fed.

Technical Outlook for EUR/USD

At present, buyers need to focus on breaking above the 1.1550 level. Only then will it be possible to target a test of 1.1580. From there, the pair could climb toward 1.1610, though doing so without the support of large players will be quite difficult. The ultimate target would be the 1.1636 high.

If the pair declines, I expect strong buying interest only near 1.1520. If no major buyers appear there, it would be better to wait for a retest of the 1.1490 low or consider opening long positions around 1.1470.

Technical Outlook for GBP/USD

Pound buyers need to break through the nearest resistance at 1.3140. Only this will allow them to aim for 1.3180, though breaking above it will likely be quite challenging. The ultimate target lies in the 1.3215 level.

In the event of a decline, the bears will try to regain control below 1.3100. If they succeed, a breakout of this range will deal a serious blow to the bulls' positions and push GBP/USD down toward the 1.3056 low, with the potential to extend losses to 1.3010.

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