US Dollar Momentum Shifts Down after Fed Chair Powell Softens His Tone

The U.S. Dollar is trading sharply lower against a basket of major currencies late in the session on Wednesday after the Federal Reserve delivered a 50 basis point rate hike as widely expected while Fed Chair Powell offered less-hawkish than anticipated comments about the pace of future rate hikes.

At 20:01 GMT, June U.S. Dollar Index futures are trading 102.640, down 0.856 or -0.83%. The Invesco DB US Dollar Index Bullish Fund ETF (UUP) is at $27.43, down $0.23 or -0.85%.

Individually, the U.S. Dollar is down 0.88% against the Euro. Against the British Pound, the dollar is down 1.03%. Versus the commodity-linked Canadian Dollar, the dollar is off 0.82%. Against the safe-haven Japanese Yen and Swiss Franc, the dollar is down 0.76% and 0.59%, respectively.

Powell’s Less-Hawkish Tone Pressures Treasury Yields, Greenback

The 10-year Treasury yield turned lower Wednesday after Federal Reserve Chairman Jerome Powell indicated that the central bank won’t get even more aggressive in raising rates.

The central bank raised its benchmark interest rate by half a percentage point on Wednesday. Powell said at a press conference that 50-basis-point increases are under consideration in the next two meetings. However, he said a 75-basis-point hike is not on the table for now.

“A 75-basis-point increase is not something we’re actively considering,” Powell said. “I would say I think we have a good chance to have a soft or softish landing, or outcome if you will.”

Along with the move higher in rates, the central bank indicated it will begin reducing asset holdings on its $9 trillion balance sheet, starting June 1.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum is trending lower. A trade through 103.950 will reaffirm the uptrend. A move through 99.810 will change the main trend to down.

The minor trend is down. It turned down when sellers took out the minor bottom at 102.810. The move shifted momentum to down.

The minor range is 99.810 to 103.950. Its 50% level at 101.880 is the first downside target.

The short-term range is 97.730 to 103.950. Its retracement zone at 100.840 to 100.106 is the next downside target area.

Short-Term Outlook

The momentum created by Wednesday’s selling pressure is likely to lead to a test of the minor pivot at 101.880 early in the session on Thursday. We could see a technical bounce on the first test of this area, but if it fails then look for a sharp break into 100.840 to 100.106.

Side Notes

Fed Chair Powell’s comments gave long investors permission to take profits. With so many longs in the market, we could be looking at the start of a steep break with 100.840 to 100.106 the next major target area. This is also the last potential support before the main bottom at 99.810.