Further to our previous article, FXCM's USDOLLAR basket reacted off its key support level at 12,750. The catalyst for the reaction were comments by Fed Governor Christopher Waller.
He said the Federal Reserve must continue to increase interest rates as inflation remains excessively high. Waller expressed that banks are not reducing lending, which would slow down the economy, and his views on the outlook have not changed since the last interest-rate meeting in March.
Waller stated that due to the strong and tight labour market, high inflation, and unchanged financial conditions, monetary policy needs to be tightened further. Although Waller called the March CPI report "mixed news," he noted that core consumer prices have increased for four months consecutively.
Waller said that he is willing to adjust his stance based on the data available, including lending conditions.
We note that the stochastic is rolling over (black ellipse). If it moves to its lower quintile and holds (red rectangle), momentum will be pushing to the downside. The Fed will likely deliver another 25bps hike on 3rd May but there is a strong probability that this will be the last hike in the current cycle. Tighter credit conditions caused by the March banking turmoil may still manifest, despite Waller's comments. If so, this will serve to slow down inflation.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.