After the bottoming fails, the fate of the dollar may be controlled by this data

The US dollar index rebounded from the beginning of June, rising from around 89.5 all the way to a high of 93.19 in July, but since then it seems to have lost its upward momentum, and there has been a continuous decline, currently hovering around 92.

Judging from the daily chart of the US dollar index, there was a chance to form a double-bottom reversal pattern. Unfortunately, it was under a lot of pressure near 93 and failed to effectively break through the neckline. If it fails to break through in the short term, the double-bottom structure It will fail, and the US dollar index will remain volatile and fall.

At present, there are two main factors that can support the US dollar index. One is the hedging factor.

In mid-July, affected by the delta mutant virus, the number of new crown cases in the United States, Europe, Japan, and Southeast Asia increased rapidly. The market risk appetite dropped sharply in a short period of time. Risk aversion sentiment surged, leading to a decline in global stock markets and safe-haven currencies. The dollar was boosted.

It's a pity that risk aversion is like a gust of wind, coming fast and going fast. Soon the risk appetite of the financial market reversed again. The market's worries about the Delta virus were wiped out. The three major U.S. stock indexes rebounded and reached new record highs, and the U.S. dollar was sold off. As the global vaccination rate increases, the impact of the epidemic will weaken.

The second major factor affecting the US dollar index is the Federal Reserve's monetary policy.

Last Thursday, the Federal Reserve's interest rate decision announced that it would maintain interest rates and the scale of asset purchases unchanged. Emphasize that despite the rise in new infections, the US economic recovery is still on track. The tone of this statement is still optimistic. Although it is pointed out that the discussion of reducing the asset purchase plan is underway, it did not give a specific timetable.

At a press conference after the announcement, Chairman Powell stated that millions of people are still unemployed in the United States. He emphasized that the US economy still has a long way to go before it can make substantial progress in stabilizing prices and full employment. Only the US job market still needs to "make some progress" before the economic stimulus measures can be withdrawn.

The U.S. dollar remains bullish in the long run

In the short term, the dovish Federal Reserve will hit the US dollar very hard, but we are still bullish on the US dollar in the medium to long term.

Although the Fed has repeatedly stated that inflation is "temporary" and not an imminent risk, is this really the case?

Last Friday, the United States announced the June core PCE price index annual rate of 3.5%, which was lower than the expected 3.7% but the highest since July 1991; the earlier US June non-seasonally adjusted CPI annual rate recorded 5.4% , Which set a new high since August 2008; June’s seasonally adjusted CPI monthly rate was 0.9%, the highest since June 2008; June’s unseasonally adjusted core CPI’s annual rate was 4.5%, the highest level since 1991.

U.S. inflation data has exploded one after another, even if it is "temporary", the Fed will be under increasing pressure to reduce debt purchases and raise interest rates.

At present, the market is focusing on the Fed’s Jackson Hole seminar in August. This is the first offline meeting of policymakers since the outbreak of the epidemic. After the July meeting was more dovish, the market issued a hawkish attitude towards the August meeting. The voice is not very hopeful, and the Fed may take action at the FOMC meeting in September.

Whether it is August or September, the possibility of the Federal Reserve's reduction of the bond purchase schedule is increasing. In particular, if the employment data is also good while inflation is rising, the Fed’s excuse for continuing to dovish will be unsustainable. Therefore, the U.S. non-agricultural employment data this Friday will be even more important. If the data goes bad, the Fed will be able to continue to be dovish; if the data goes well, the pressure on the Fed to reduce debt purchases will increase.