(Slobodan Drvenica – Windsor Brokers)
US Dollar Index
The dollar index is holding within a narrow consolidation in early Friday, following strong rally in past two days (up almost 2%) which retraced 50% of 114.72/109.95 pullback, adding to signals that corrective phase from new 20-year high might be over.
Daily studies returned to bullish setup and a bear-trap under 110.81 (Fibo 38.2% of 104.49/114.73) contribute to positive near-term outlook, with today’s close above 112.33 pivot (50% retracement of 114.72/109.95 / daily Tenkan-sen) to boost bullish signals.
Markets focus on US labor data as a key event today, with solid numbers to add to positive dollar’s sentiment, strongly underpinned by signals that the Fed remains on track for aggressive policy tightening.
US unemployment is expected to remain unchanged at 3.7% in September (close to the lowest since 2019) while non-farm payrolls are forecasted at 250K, down from August’s 315K, but seen positive while holding above 200K.
Only a shock from significantly weaker than expected US labor figures would derail dollar bulls.
Res: 112.33; 112.66; 112.90; 113.59.
Sup: 111.94; 111.77; 111.40; 111.18.
Fed’s final rate hike could be near, what does that mean for commodities? [Video]
(Phil Carr – The Gold & Silver Club)
Commodity prices surged to fresh multi-month highs this week amid growing expectations that the Federal Reserve will ease rate hikes or even bring them to an end as soon as November.
After being criticized for being slow to recognize inflation, the Federal Reserve has embarked on its most aggressive series of rate hikes since the 1980s. But in doing so, the odds of a global economic downturn have also accelerated with economist predicting that a recession is now inevitable.
And the worst thing about this major policy error is that it could have been avoided had the Federal Reserve acted sooner.
The Fed began hiking interest rates to tame sky-high inflation in the spring of this year, the first time it had done so since slashing them to zero in the early days of the pandemic. When inflation began creeping dangerously higher in 2021, Federal Reserve Chair Jerome Powell insisted that it was only “transitory” and nothing to be concerned about.
The Fed is now frantically trying to regain its credibility and make up for lost time by raising rates at the fastest pace in decades.
A ripple effect of the Fed’s “too much too late” actions have dramatically strengthened the dollar – raising further concerns among leading economists that the U.S currency will be the next asset bubble to burst.
According to Morgan Stanley – “such U.S dollar strength has historically always ended in some kind of financial or economic crisis” and that’s the exact direction we are heading in again
In recent weeks, a long list of Wall Street banks and international organization from the United Nations, World Bank and IMF have warned that an overly aggressive Fed tightening policy, combined with a surging U.S dollar – “risks breaking the financial markets and inflicting worse damage globally than the financial crisis in 2008 and the Covid-19 shock in 2020”.
Growing backlash against the Fed comes at a pivotal moment – following a significant move from The Bank of England last week, who reverted back to unprecedented “Quantitative Easing” measures, to avert a full-blown global financial meltdown.
Pressure is now piling on the Federal Reserve to follow the Bank of England’s lead and put a brake on rate hikes.
Regardless of which direction the Fed chooses now, they are unfortunately trapped in a box of their own making – faced with a situation common to chess players down on their luck – stuck with nothing but bad moves to play.
On one hand, if the Fed continues hiking rates aggressively into a weakening economy, then a severe 2008-style recession is virtually assured. On the other hand, if the Fed changes course on rate hikes, that will inevitably lead to entrenched inflation. That toxic combined with an economic downturn would lead to 1970s-style stagflation – an even worse outcome for the global economy.
The big question now is will the Federal Reserve be next to announce a major policy U-turn?
Only time will tell, however, the one thing we do know is that extraordinary times create extraordinary opportunities and right now, this market is a traders paradise – packed with endless money-making opportunities, almost on a daily basis!
Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:
Read FX Daily: Payrolls may add fuel to the dollar recovery
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