Hawkish Bullard sends US Dollar higher

Just when you thought the Fed was not as hawkish as first thought, enter James Bullard. He is President of the Federal Reserve Bank of St Louis, as well as a member of the FOMC committee. Yesterday, the back end of the yield curve moved lower with 30-year yields moving from a high of 2.212% down to 2.094%, a decrease of nearly 12bps. In addition, 10-year yields moved from 1.589% down to 1.506%, a decrease of 7 bps. This indicates the FOMC may have seemed a little too hawkish for the markets liking. See our complete FOMC recap HERE.

Everything you need to know about the Federal Reserve

Bullard tried to cement the results of the FOMC’s discussion on Wednesday with his hawkish rhetoric this morning:

FOMC was surprised on the upside over the last few months; Natural we tilted a bit more hawkish
Inflation was more intense than expected
Powell officially opened taper discussion this week; more in-depth discussion to follow
Leaning toward idea Fed may not need to be in MBS

As a s result of the hawkish stance, the US Dollar has continued its path higher since the FOMC statement on Wednesday afternoon. After the extended move post-FOMC, we were looking for correction, as the RSI has moved into overbought conditions. Thus far, we haven’t gotten it yet:

Source: Tradingview, City Index

Everything you Need to Know about the US Dollar

On today’s move higher, price busted through the 61.8% Fibonacci retracement level from the March 31^st highs to the May 25^th lows. The RSI has also moved further into overbought territory with a reading close to 72.75, an indication a pullback may be ahead. The next resistance level isn’t until the gap fill at 92.83 from April 5^th. Support is at today’s lows near 91.80.

Looking at the AUD/USD, after forming a DOUBLE Head and Shoulders pattern, price began to move aggressively lower post-FOMC. The pair halted at the 200 Day Moving Average once it reached the target for the second head and shoulders pattern near 0.7560. However, the pair continued to move lower as Bullard spoke, and can continue lower to horizontal support near 0.7410. The target for the larger Head and Shoulders patten is near 0.7220, however it must first pass through additional horizontal support near 0.7342 if it’s going to reach there. Resistance is above at the 200 Day Moving Average near 0.7550, and then horizontal resistance at 0.7645.

Source: Tradingview, City Index

EUR/USD has been moving lower on the Bullard comments as well. See the recent article from my colleague Fiona Cincotta EUR/USD at two-month low on central bank divergence for some great analysis of EUR/USD!

Bullard’s comments sent a message to the currency markets. Tapering is coming sooner rather than later. If Fed members continue to speak as hawkish as Bullard, the US Dollar could have further to run on the upside!

*Note that Bullard is not a current voting member of the FOMC, however he will be in 2022.

Learn more about forex trading opportunities.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.