Yesterday, the US Dollar index traded within a relatively narrow price range between 79,88 and 80,08. This took place amid the Fed's conference in Dallas. The trading community tried to figure out how the Fed estimated the near-term prospects of the US economy.
Today, the index is slightly up. The Dollar is trading 0,05% higher against a basket of 6 other major currencies. For now, the price is somewhere around 80,08, Market Leader reports.
Yesterday, the heads of the Federal Reserve banks discussed the existing economic problems and the future of the Fed's money-and-credit policy. Some of them assume that the central bank is moving toward normalizing the policy and is likely to stat raising interest rates in 2015. The degree of success in tapering the bond purchase program will depend on the clarity of the communication with investors.
Despite the ultra low level of inflation, further quantitative easing or its expansion may result im major financial risks for the entire US economy and financial system. Indeed, a cold winter resulted in lower-than-expected GDP in Q1 2014. The US GDP is expected to increase by 2,5%.
Ben Bernanke, former Chairman of the Federal Reserve, made a speech as well. He assumes that higher interest rates will signal an economic recovery in the USA. At the same time, he says there is no need to reduce the Fed's asset balance. He says that the Fed's major targets concern stimulating and supporting the labor market
Market Leader reminds you that the Fed is currently busy tapering QE3. The program is aimed at reducing the cost of lending and stimulating economic growth. In May, the Fed reduced the bond purchase program by $10bn down to $45bn a month. The central bank is expected to keep on tapering the program by $10bn a month to finish it by late 2014. Janet Yellen, which is currently presiding over the Federal Reserve, mentioned a couple of times that interest rates will be raised only after QE3 is completed. Most market participants expect the first interest rate hike in mid 2015.
US Dollar Index
According to Masterforex-V Academy, the US Dollar index is currently showing us a bearish reaction after a pretty strong rally. Still the rally was a secondary move against a long-term downtrend. The downtrend is represented by a bearish sloping channel marked blue.
The current consolidation range is 79,88-80,08. So, the mid-term prospects of the currency pair will clarify after the price breaks and consolidates outside of the price range.
If the price breaks and consolidates above the top of the range, we are likely to se the price moving up to 80,28 or higher, up to 80,48. The scenario is marked green.
Alternatively, if the price moves down to turn 79,88 from a support level into a resistance level, we will probably see a further downswing to 79,78 and 79,53. The scenario is marked red.
