The US Dollar Index bounced up by around 1% after releasing the
minute of Federal Reserve Board on 19 Aug, breaking the record high
since this March. The minute shows that the board tends to adopt more
dovish approach in monetary policy. Yet, Why did the US Dollar Index
make such a big bounce-up, driving those non-US dollar or even precious
metal down？To get more news about https://www.wikifx.com, you can visit wikifx official website.
According to the minute of Federal Reserve Board, some of the
committee members of FOMC agreed to adopt the further easing monetary
policy to cope with the negative impact bought by COVID-19; however,
traders were disappointed and started to have short covering of USD
immediately, driving USD rise a lot.
I believe traders have already predicted and short USD ahead of
releasing of minutes; and, they short cover the USD afterwards. It
perfectly demonstrates the famous Wall Street‘s buying strategy – “Buy
on rumor, sell on fact”. Meantime, the minute also reflects that the
officers of the Board won’t set the upper limit or target return for US
bonds to secure the position of USD. It drives those “extreme” dovish
party disappointed and shows Federal Reserve Board has no further
measures on easing monetary policy. Thats why some may interpret as the
start of hawk signal instead of dove.
I agree the Federal Reserve
Board intends to adopt more dovish approach to pave the way for adopting
further easing monetary policy in future. Since the minute keeps on
telling negative towards economy, it drove both DJ index and Nasdaq
index drop simultaneously after hitting the record high. With the
divergence works between USD and stock; USD index, therefore, increases
drastically after releasing of minutes.
Many has talked about the huge short covering of USD, which showed the
signal of bouncing up after touching the bottom. Whilst some said this
is merely a technical adjustment and will have further drop afterwards. I
do think the probability of both scenarios are equal; yet I realize USD
dose not have much room for further drop, expecting a strong supporting
level around 91.90. Two focusing events may affect the trend of USD -
i/ the economic platforms of democratic party proposed by US president
candidates Joe Biden and Kamala Devi Harris; ii/ the announcement of
Jackson Hole in the Central Bank annual meeting and the market
expectation - the new and innovative strategy of easing monetary policy
by Powell, the chairman of Federal Reserve Board. If it turns negative
and has no new ideas, USD index will be expected to boost up again.
Technically, USD has a strong resistance level at around 94, with 3
times strong selling signal recently, making USD index hard to have
another breakthrough. It is estimated to be positive if USD index breaks
the 94 level and takes this as the USD reference point.
