Federal Reserve interest rate cut expectations waver, how will the dollar perform in the future?

On Friday (August 22), the dollar index remained strong in silent market trading. The dollar's performance was mainly influenced by the Federal Reserve's policy outlook and US economic data. Yesterday's US economic data results were more mixed: initial jobless claims were weaker than expected, the Philadelphia Fed manufacturing index was also lower than expected, and the purchasing managers' index (PMI) was strong. These data prompted the dollar to recover slightly. In particular, the strong response to the PMI data triggered a reassessment of the market that the Federal Reserve may not cut interest rates immediately in the short term.

The market's expectations for the Federal Reserve's interest rate cut have been revised, and the probability of a 25 basis point cut in September has decreased. The interest rate futures market has now lowered its expectation of a December interest rate cut to less than 50 basis points. There is still uncertainty in the market's view of the Federal Reserve's policy, but as more officials speak, the market's focus gradually shifts to the non-farm payroll data in September, which may become a key factor in determining whether the Federal Reserve continues to cut interest rates.

Technical aspects:

From a technical perspective, the price trend of the US dollar index shows a certain volatile rebound. The chart shows that the current US dollar index is near the middle Bollinger Band (98.3323), and is supported and suppressed by the lower Bollinger Band (96.9866) and upper Bollinger Band (99.6781) in the short term.

The MACD indicator is still above the 0 axis, indicating that there may be some room for the exchange rate to rebound in the short term. The current MACD value is 0.0477, indicating that the upward momentum is still there.

In addition, the volatility of the current trading range has gradually increased under the influence of the width of the Bollinger Band, and the trading volume has also increased, suggesting that the market may be gathering strength and preparing for the next breakthrough. But it cannot be ruled out that before the release of non-farm data in September, there will be a certain technical adjustment of the US dollar.

Market sentiment observation:

The current market sentiment is showing a certain cautious and wait-and-see state. While the dollar is supported by the data, traders' doubts about the direction of the Federal Reserve's policy remain. From the perspective of the futures market, the market's expectations for the Federal Reserve to cut interest rates in the short term have weakened, but the speeches of Federal Reserve officials still provide different voices for the market. This uncertainty complicates market sentiment.

Some emerging market currencies, such as the South African rand, the Korean won, and the Mexican peso, have also received some support from a rally in risk assets, suggesting that, despite the strength of the dollar, other currencies have performed better when risk sentiment has improved, reflecting mixed market reactions to Federal Reserve policy and the global economic outlook.

Outlook for the future market:

Short Outlook:

If the Federal Reserve maintains its dovish stance in future meetings, especially the expectation of a rate cut in September, the dollar may experience a short-term correction; the market may further correct its previous rise, and the strength of the dollar will be suppressed.

Long outlook:

If the Federal Reserve releases a more hawkish signal of interest rate hikes, especially a clearer message of tightening policy in the speech of Federal Reserve Chairperson Powell, the dollar may usher in a new wave of gains. In the short term, if the dollar breaks through the upper track of the Bollinger Band (99.6781), it will provide technical support for its further rise.