US Dollar forecast: Forex Friday – September 13, 2024

After this week’s slightly strong core CPI and PPI inflation data, the market is still wondering whether the Fed will deliver a 25 or 50 basis point rate cut next week. Judging by price action in the FX and rates markets, investors are certainly looking for a dovish rate decision. This could be in the form of a surprise 50 basis point cut, or 25 bps cut with a strong hint of at least one 50 bps cut in the remaining 2 meetings later this year. Ahead of next week’s central bank bonanza, when the Bank of England and Bank of Japan will also decide on their own monetary policies, the US dollar forecast remains bearish.

Will the Fed deliver a 25 or 50 basis point cut?

Despite slightly hotter-than-expected inflation data this week, the market has made it clear that it is no longer a major focus area for the markets or indeed the Federal Reserve. It is all about the economic growth now and jobs market, which go hand in hand. It is indeed a slowing jobs market that has caused the Fed to pivot. The FOMC will cut interest rates next week and it’s all about whether they will opt for a 25 or 50 basis point cut. You would think that after the hotter inflation data that the implied probability of a 50-bps cut would have dropped to zero. In fact, it did fall close to zero, but it has since bounced back to around 45%, and we are back to square one. This implies that there is an equally split chances of a 25bp or 50bp cut next week. As a result, we have seen dollar weaken across the board, and gold has hit a new all-time high.

Holding pattern for US dollar likely ahead of FOMC meeting

There’s not much in the way of significant data to alter those odds until the September 18 FOMC day. The only event in the macro calendar is the University of Michigan’s consumer sentiment and inflation expectations surveys. Consumer sentiment is expected to have improved a tad in September, and inflation expectations are expected to have flatlined.

With the dollar already weakening amid the dovish repricing of US rates, there is now the potential for the greenback to go in a holding pattern as the market awaits the Fed’s decision. Come Wednesday, even if the Fed opts for a 25bps move but signals that larger easing could be on the cards in the coming months, this will probably have a similar impact as cutting by 50 bps. This should keep the dollar in an overall bearish pattern.

Impact of US elections dollar forecast

Beyond the rate decision, the dollar’s path will be impact by the US elections and obviously incoming macro data in the weeks ahead. The direction of US election polls is important to monitor. With Kamala Harris seen as a more dollar-negative candidate, this also explains why we have seen the greenback drop after the two candidate’s live TV debate. Trump is against another debate, so it may be a struggle for him to take the lead in the polls. Thus, if Harris continues to outperform then we could see the greenback lose further ground, leaving it to economic data to provide support.

Dollar forecast: Dollar Index (DXY) technical analysis

Source: TradingView.com

From a technical point of view, the dollar forecast is bearish judging by the lower lows and lower highs seen on the Dollar Index (DXY) chart. While we could see a bit of recovery ahead of the FOMC meeting and next week’s other major central bank decisions, the path of least resistance is to the downside. As such, I will favour looking for bearish patterns to form near resistance than bullish setups near support. Short-term resistance is now seen between 101.26 to 101.37, followed by 101.80. Support comes in between 100.50 to 100.60. If this area breaks, then 100.00 could be the next downside target.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R