Facts
- Statements by Fed members suggest that a 25 rate cut in December is still likely (the market is pricing it with a 75% probability)
- Christopher Waller of the Fed has indicated that he is inclined to 25 bp Fed rate cut in December
- The dollar continues to weaken; despite yesterday’s stronger-than-forecast ISM manufacturing report from the US. However, the ISM manufacturing price sub-index felt significanlty
- On the USDIDX chart, we can see a potential bearish head and shoulders technical pattern; from a local peak above 108.1, the dollar has slipped to 106.2
Recommendation
Short position (sell) on USDIDX at market price
- Stop loss: 106.7
- Take profit 1: 105.640
Opinion
Yesterday’s manufacturing ISM for November, while better than forecast, indicated a decline in the price sub-index to 50.3. versus 54.8 in October; well below the 55.2 forecast, which called for further growth. Today, dollar volatility may increase around 4pm (JOLTS data), and this week the market still faces ISM services data on Wednesday and Friday’s NFP report. Positive sentiment in stock markets during the last festive month of the year could lead to further evaporation of the dollar’s ‘upward momentum,’ and a 25bp Fed rate cut in December, would make a further decline in yields on US 10-year Treasury bonds likely (these have fallen from around 4.45% since mid-November to 4.21% today). The narrative of the need for more caution in policy easing in 2025 no longer surprises markets; the Fed does not seem to be conditioning its decision on the narrative built around Trump’s (potentially) pro-inflationary policies; perhaps it prefers to wait for the final shape and assess the impact of actual actions only after the new administration ‘takes over’ the White House. A slide of the dollar index contract (USDIDX) below the neckline in an head and shoulders technical pattern could potentially trigger another downward impulse; leading to a test of previous, significant price reactions near 105.64. We recommend taking a short position on USDIDX, at the market price with a fixed stop loss order, at 106.7, and a take profit, at 105.64.
Source: xStation5
