Fed Hawkishness and Dollar Strength
With Fed officials warning that higher interest rates could be needed, we are adjusting our strategy for a stronger US Dollar. Inflation is proving stubborn, so the central bank may keep its policy tight for longer than the market previously expected. This hawkish stance is the primary driver for our trades in the coming weeks. The strong ISM Services PMI of 54.5 in May confirms the US economy’s resilience, which supports the dollar. We also see that core inflation, according to the latest PCE data from late May, is still hovering around 2.8%, well above the Fed’s 2% goal. This combination of strong growth and sticky inflation justifies betting on continued dollar strength.Trading the NZD/USD Ahead of Payrolls
We are positioning for Friday’s Nonfarm Payrolls report, which will be a major market mover. Expectations are for job growth to be around 190,000, and if the actual number comes in higher, it will almost certainly lock in the Fed’s hawkish stance. We are therefore considering buying short-term options to profit from the expected volatility. We see the NZD/USD pair as a clear way to play this theme, as it is already showing significant weakness. While the RSI is oversold near 27, suggesting a possible small bounce, we would view any rally towards the 0.5890 resistance level as an opportunity to sell. A decisive break below the 0.5857 support level would be our signal to add to bearish positions.Start trading now — click here to create your real VT Markets account.
