The U.S. Dollar Continues to Experience Problems

[Ben Graham]

The U.S. dollar continues to experience difficulties, and recent statements from central bank officials have only added to the pressure.

Yesterday, Federal Reserve official Stephen Miran said that the U.S. central bank risks triggering a recession if it does not continue cutting interest rates next year. "If we don't cut interest rates, I think we're taking a risk," Miran said in an interview. He added that he does not foresee an economic downturn in the near future, although rising unemployment should push Fed officials toward further rate cuts.

Miran's comments came at a time when a fairly solid report on U.S. economic growth was released. However, inflation, while showing signs of slowing, remains above the Fed's target level. At the same time, the labor market is facing challenges, with rising unemployment serving as direct evidence. In Miran's view, this could be a harbinger of more serious problems.

Miran's position is not unanimous within the Fed's leadership. Some members of the Federal Open Market Committee, on the contrary, favor keeping rates at their current level, arguing that inflation still needs to be brought under control. In their opinion, cutting rates could lead to a new round of inflationary pressure and destabilize financial markets.

"The unemployment rate may have risen even further. New data should push Fed officials toward easing monetary policy," the policymaker said. "After policymakers cut interest rates three times since September this year by a total of 75 basis points, the need to cut the rate by half a percentage point at the next Fed meeting at the end of next month has diminished," Miran added. "At some point, we will reach a territory where we can start doing micro-management instead of large-scale cuts. I don't know whether we've reached that level yet or whether it will take a few more cuts, but we're definitely moving in the right direction."

Let me remind you that this month the Federal Reserve cut interest rates by a quarter of a percentage point, but officials' views on further action remain deeply divided: most are forecasting only one more cut next year. Recent public remarks indicate that the majority intend to keep rates unchanged in January, waiting for greater clarity on the economic outlook.

As for the current technical picture of EUR/USD, buyers now need to focus on breaking through the 1.1805 level. Only this would allow them to target a test of 1.1830. From there, the pair could move up to 1.1860, but doing so without support from major players will be quite difficult. The most distant target is the high at 1.1901. In the event of a decline in the trading instrument, I expect any serious action from large buyers only around the 1.1775 level. If there is no support there, it would be advisable to wait for a retest of the 1.1754 low or to open long positions from 1.1729.

Regarding the current technical picture of GBP/USD, pound buyers need to overcome the nearest resistance at 1.3555. Only this will allow them to target 1.3590, above which a breakout will be quite difficult. The most distant target would be the 1.3622 level. In the event of a decline, bears will attempt to take control of the 1.3505 level. If they succeed, a break of this range would deal a serious blow to bullish positions and push GBP/USD down to the 1.3475 low, with the prospect of a move toward 1.3445.

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