Dollar Index outlook: The dollar was sold across the board on fresh dovish signals from Powell

The US dollar fell across the board on Friday, following a highly anticipated speech of Fed Chair Powell in Jackson Hole symposium.

Although Powell did not provide more details about the size and pace of policy easing, as this will depend on incoming economic data, he confirmed that the Fed is on track to start cutting rates, with the cycle likely to commence in September.

Powell said that the central bank has nearly completed two tasks given by Congress, as inflation remains in sustainable downward trajectory towards 2%, and the labor sector is cooling, with current unemployment rate being roughly at the level the policymakers see as consistent with stable inflation over the longer run.

Market fully price a 25 basis points cut in September, but bets for more aggressive 50 basis points cut, have picked up after Powell’s remarks, leaving all scenarios on the table.

Markets welcomed Powell’s remarks which confirm signals from FOMC minutes released earlier this week that the time to start adjusting monetary policy has come.

The dollar index, which tracks the performance of the US dollar against the basket of major world currencies, fell over 0.6% in immediate reaction to Powell’s speech and hit the lowest in eight months.

Fresh bearish acceleration is now pressuring targets at 100.29/18 (December 2023 low / 200WMA) and 100.00 (psychological), violation of which would signal and end of wider multi-month range and spark stronger drop.

The dollar index is on track for the biggest daily loss since Aug 2, also for the fourth consecutive weekly close in red and the biggest monthly dropsince Nov 2022.

Meanwhile, some profit taking should be anticipated after markets digest Powell’s message, while headwinds could be expected from 100.29/00 supports and also due to the fact that daily studies are oversold.

Since dollar’s broader negative sentiment has been boosted by the latest comments from Fed chief, likely reaction would be limited correction which will provide better levels to re-enter broader downtrend.

Barriers at 101.50/102.00 zone should ideally cap upticks.

Res: 100.75; 101.50; 101.87; 102.61

Sup: 100.29; 100.18; 100.00; 99.20