Trade idea on the dollar index (DXY) from November 17, 2022
The dollar index remains slightly above the 106.0 level, working off a corrective decline after last Friday's U.S. inflation report.
This week the DXY bears were supported by the producer price index data, which confirmed the reduction of inflation pressure. In October, the U.S. producer price growth rate fell to 8.0% from 8.4%. The statistics reinforced speculation that the Fed would slow the pace of rate hikes in order to reduce the risks of an economic recession.
At the same time, central bank officials are once again warning markets against ephemeral hopes, saying that the fight against inflation is ongoing and will not be stopped until stable results emerge. "It is wrong to be guided by a single report," the FOMC members said. Moreover, Rafael Bostic, head of the Atlanta Fed, noted that despite slowing price growth, inflation is at very high levels, far from the 2% target.
The Fed says that monetary tightening will continue and that its key rate range of 4.75%-5.25% is still a priority for the regulator
According to the CME, there is an 85% chance of a 50 basis point hike in December.
With the Fed continuing to fight inflation, dollar selling could very quickly be replaced by buying. Some kind of driver is needed for that to happen. This could be the growth of political uncertainty after the parliamentary elections in the U.S., dividing Congress roughly in half. Republicans retained control of the House of Representatives, while the Democrats will rule in the Senate. In 2011, a similar setup sent the dollar in a bullish trend after the party representatives failed to reach an agreement on the national debt ceiling, putting the economy on the verge of default.
We believe that it is time to look out for buying the dollar and offer to place a forex order on the DXY
Buy-stop 106.50 take-profit 108.00 stop-loss 106.00
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