22.12.202214:29 Forex Analysis & Reviews: Dollar: Immediate prospects

Almost at the end of an active trading week (ahead of the Christmas holidays), the dollar remains under pressure. At the same time, the dollar index (DXY) does not leave attempts to update new (since the end of June) lows. Last week, DXY futures touched the 103.40 mark, the lowest since June 29, and this week they again came close to it three times (Tuesday, Wednesday, Thursday). As of writing, DXY was at 103.69, 26 points above today's low.

Market participants are still under the impression of the Fed meeting, which ended last week. As we know, Fed officials decided to reduce the pace of monetary policy tightening, raising the interest rate by 0.50% (after raising the rate by 0.75% in June, July, September, November).

And although Federal Reserve Chairman Jerome Powell tried to dispel doubts that market participants had about the tough prospects for monetary policy and the dollar strengthened the day after the meeting, in general, the dollar index continues to develop downward dynamics that originated in October.

As we noted in one of our recent reviews, many economists are already predicting the Fed will cut the size of the rate hike again in early 2023, moving on to 0.25% hikes in February and March. And this is a harbinger of a deeper drop in DXY. The first signal for new short positions will be a breakdown of the local support level and 50 EMA on the weekly chart of the DXY index (CFD #USDX in the MT4 trading terminal), passing through 104.50, and the 104.00 "round" support level.

As you can see, both support levels have been broken, and the sellers of the dollar and DXY index are trying to gain a foothold in the zone below the 104.00 mark to push it lower towards the 100.00 "round" support level. A breakdown of the 98.40 key support level will finally break the DXY bullish trend.

As for today's economic calendar, a whole block of important macro statistics for the United States will be released at 13:30 GMT. In addition to the final releases on GDP, price indices for the 3rd quarter (the data should confirm the growth of indicators), the weekly report on the state of the U.S. labor market will be published with data on the number of jobless claims. The state of the labor market (together with GDP and inflation) is a key indicator for the Fed in determining the parameters of its monetary policy.

Initial and continuing claims for benefits are expected to remain at pre-pandemic lows, which is also positive for the dollar, indicating the stability of the U.S. labor market.

In view of this, we should expect the dollar to rise during the American trading session. However, we also need to be prepared for its decline, especially if the data does not live up to expectations, or revised for the worse.

Tomorrow, market participants will closely follow the publication (also at 13:30 GMT) of data on orders for durable goods in the U.S. and Americans' personal income/spending data.

All these are important indicators for the dollar. In other words, an active increase in volatility is expected at the end of the week, giving us some interesting trading opportunities.