US Dollar Falls Significantly Following Indications of FED Tapering

The US dollar weakened against several other currencies as inflationary pressures in the US economy were confirmed by the release of US CPI data for September. Characteristically, the general level of the CPI rose on an annualized basis, again reaching a 13-year high.

On the other hand, the minutes of the September Fed meeting confirmed the Fed’s plans to begin cutting the bank’s quantitative easing program this year, and this cut should be completed by mid-2022. US yields were on a downward trend given the weakness of the dollar; the price of gold got a chance to rally as the precious metal is also considered a hedge against inflationary pressures.

U.S. equities posted a slight gain yesterday and we expect fundamentals to continue to support traders’ interest, although some attention is also expected to be given to the weekly initial jobless claims data released later today, as well as the Fed policymakers scheduled to speak today.

Container ship backlogs have increased in numerous American ports. As a result, with inflation rising and the unemployment rate falling, the Fed is likely to begin tightening its monetary policy. According to minutes released yesterday, several Fed officials anticipate that slowing asset purchases might begin as early as mid-November. Many Fed officials expect rates to rise in 2022, according to the dot plot.

After the inflation figures and Fed minutes, the EURUSD pair rose while the US dollar fell. The pair has risen over the major resistance level of 1.1585 on the hourly chart. The neckline of the double-bottom pattern, whose lower level was at 1.1528, was reached at this price. The price crossed over the 25-day moving average (MA), and the MACD crossed above the neutral level. As a result, the pair is likely to continue climbing, with 1.1630 as the next major mark to watch.

US Dollar Value Decreases

A strong auction of 30-year bonds the night before and a re-alignment of the US yield curve, triggered by a drop in long-term yields following US inflation data, sent the dollar index plummeting. The dollar index fell 0.54% to 94.00, after which it showed a slight increase in Asia to 94.05.

What cannot be denied is that the dollar index has tracked a major top at 94.50, and a daily close above that level will be a strong indicator of further upward movement. In my opinion, only a drop to 93.50 temporarily changes the bullish outlook for the US dollar.

It should be recognized that part of the depreciation of the US dollar is likely due to the large number of speculative long dollar positions created in the futures markets against major currencies. In terms of major foreign exchange markets, it is no coincidence that the euro, pound sterling, and Swiss franc rose more than 0.55% overnight, having been pumped up in recent days. Perhaps more importantly, USD/JPY, AUD/USD, and NZD/USD remained virtually unchanged overnight, suggesting that the difference in