Facts:
- The U.S. dollar is trading in the upper range of its consolidation channel.
- The market is pricing in a 97% probability of a Fed rate cut at tomorrow’s meeting.
- In his latest interview, Federal Reserve Chair Jerome Powell said that the quantitative tightening (QT) program could be ended within a few months.
Recommendation:
Short position at market price
- SL: 99.400
- TP: 97.600
Opinion:
The U.S. dollar reacted as expected at the upper boundary of its multi-week consolidation channel. The market is now fully pricing in a 25 bps rate cut at the upcoming (October) meeting and another 25 bps cut at the end of the year (December). Furthermore, in his October 14th statement, Fed Chair Jerome Powell said that the quantitative tightening (QT) program could be concluded within the next few months.
With the continuation of expected rate cuts and the approaching end of Powell’s term, markets are receiving increasing signals of potential further dollar weakness. During tomorrow’s press conference, Powell is likely to adopt a dovish or at least dovish-neutral tone. The ongoing U.S. government shutdown may serve as an additional argument for a more accommodative monetary policy. In such a scenario, selling pressure on the dollar is expected to persist.
Given the above arguments, we recommend entering a short position on the USD Index (USDIDX) while simultaneously setting a stop-loss order to minimize potential downside risk.
