US dollar is one of the best performing G10 currencies today, dropping only against Japanese yen (JPY) and Australian dollar (AUD). USD caught a bid following better-than-expected services ISM data for August, that showed an unexpected improvement in services sector, driven by higher readings of prices paid, employment and new orders subindices. As a result, an increase in hawkish Fed bets could be spotted on swaps. While money markets still see an around 10% chance of a 25 bp rate hike at the September meeting, pricing for November meeting jumped from around 45% to around 55% now. While this is not a massive jump, a key takeaway is that markets now see a rate hike in November as a more likely outcome than Fed staying on hold. However, it should be noted that there is still a long way to go until November meeting and a lot will happen before it - a number of key US macro reports will be released and, of course, Fed will meet to decide on rates in September!
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Create account Try a demo Download mobile app Download mobile appFed swaps pricing in an over-50% chance of 25 basis point rate hike at November meeting. Source: Bloomberg Finance LP
Taking a look at US dollar index (USDIDX) at D1 interval, we can see that the index has climbed to the mid-term resistance zone ranging below the 38.2% retracement of the downward move launched in mid-2021 (105.00 area). The index is trading at the highest level in half a year and should we see a break above the aforementioned 105.00 area, which also acts as the upper limit of the trading range, we may see a bigger upward move. Textbook range of the breakout from this range suggests a possibility of the index moving as high as 109.20 area.
Source: xStation5
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