Christopher J. Waller of the Fed commented today on the US monetary policy situation. From Waller's overall message, one can infer that there will potentially be further difficulties in the U.S. financial sector but that the Fed will respond accordingly, and that the overall system remains resilient. USDIDX has been trading with considerable weakness for several days.
- The U.S. financial system is resilient enough to handle large shocks;
- The Fed's job is to use monetary policy to fight inflation, and the banks' job is to deal with interest rate risk;
- Changes in credit since the collapse of the SVB are no different from what happened before after Fed rate hikes;
- It is still unclear whether recent bank collapses have had a significant impact on credit conditions
- The Fed's monetary policy and financial stability tools are separate, with one acting broadly and the other spotty;
- The Fed will use the right tools to stop the financial system from becoming more risky;
- Financial stability is essential for the Fed to fulfill its role;
- Monetary policy should not be changed because of ineffective management at a few banks.
Chart of dollar index contracts (USDIDX), D1 interval. The U.S. currency is still under pressure although, looking at the MACD, a rebound and the construction of a bullish inverted head-and-shoulders formation can not be excluded. However, if the psychological support at 100 points were to fall, its potential next level is the 61.8 Fibonacci retracement of the 2020-2021 upward wave, near 98.9 points. The most important resistance is the SMA200 (red line) at 105 pts. Source: xStation5
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