The latest article from "Fed Talk" has undoubtedly sparked speculation that the Fed has reached its peak interest rate, and the dollar continues to be under pressure and the outlook is worrying!

The U.S. dollar continues to be under short-term pressure, and the "megaphone" releases important signals!

During the Asia-Pacific session on Tuesday (October 31), the Bank of Japan released a dovish signal that stimulated the US dollar/yen to surge in the short term, with the US dollar index once reaching 106.45. However, dragged down by the cooling of expectations for the Federal Reserve to raise interest rates, the U.S. dollar index quickly turned around and performed an inverted V decline in the short term.

The Bank of Japan announced its October interest rate resolution, keeping the policy rate unchanged at -0.1% with a voting ratio of 8:1, and maintaining the 10-year government bond yield target at 0%. However, the Bank of Japan expanded the reference range for the 10-year government bond yield from plus or minus 0.5% to plus or minus 1.0%, increasing YCC's flexibility. After the news was announced, USD/JPY rose above the 150.00 mark in the short term. At the same time, driven by the surge in USD/JPY, the U.S. dollar index rose in the short term.

Related reading: The Bank of Japan’s big move is coming! Improving YCC flexibility, USD/JPY breaks through 150 in the short termHowever, as the three major U.S. stock index futures rebounded and U.S. bond yields fell, the U.S. dollar index continued to come under pressure and once fell below the 106 mark.

Why is the IG customer sentiment indicator more effective in the short term? how to use?

The author believes that the reduced possibility of the Federal Reserve raising interest rates again in the future has stimulated a recovery in risk appetite. The 10-year U.S. bond yield has once again fallen to the 4.8% mark, and the U.S. dollar has been sold off by the market.

"New Fed News Agency" and Wall Street Journal reporter Nick Timiraos wrote on Monday (October 30):

For more than a year, Fed officials have said they may keep interest rates high for longer than investors expect in an effort to beat inflation. U.S. long-term bond yields have risen rapidly from 4% in early August to around 5%, indicating that Wall Street now agrees with the above view. The result is rising borrowing costs for U.S. businesses and households, which could lead the Federal Reserve to pause its historic rate hikes.

In addition, Nick Timiraos cited analysis by economists and pointed out that the surge in U.S. bond yields is approximately equivalent to three 25 basis point interest rate hikes, which has tightened financial conditions enough.

How to trade a major risk event like the interest rate decision?

The Federal Reserve's November interest rate decision is about to be announced, and the article "Fed Talk" has undoubtedly sparked speculation that the Federal Reserve has reached its peak interest rate.

The author believes that rather than saying that the Fed's monetary policy relies on economic data, it is better to say that economic data serves monetary policy. In other words, the Fed's operation is to use economic data to guide market expectations. However, the "off-the-charts" preliminary GDP value for the third quarter failed to increase the market's tightening bets (i.e., expected guidance failed). In addition, the extreme U.S. bond market has had the effect of raising interest rates. It may be time for the Federal Reserve to consider withdrawing from the nearly 40-year period. The most aggressive tightening cycle in years.

Although the Fed's tendency to "hawk-style hover" again is not low, it is likely to be less hawkish than in September.

When the interest rate was decided in September, the 10-year U.S. Treasury yield was still below 4.5%. Subsequently, the yield continued to rise and once exceeded 5%, further pushing up supply costs and exacerbating liquidity constraints. Therefore, the Fed may calm the market to some extent.

If so, the U.S. dollar index may continue to be under pressure and continue to refresh recent lows!

Following the trend is the key to successful trading. How can we better identify trends and follow them?

Technical analysis of the U.S. dollar index: The risk of a phased peak has not yet been eliminated!

The daily chart of the U.S. dollar index shows that the price stopped falling and rebounded after testing 99.58 (point The upward channel fell below the track, with the lowest falling to 105.36 (low point B on October 24).

The market rebounded for a time, but was blocked by the 0.786AB retracement level and then came under pressure again. The important support below is in the 105.30~105.50 area. Once this area falls, the signal of a phased peak will be very clear, and the market may fall further to the 104.50 or even 103.50 level.

However, if the price finds support near 105.30~105.50 again, pay attention to the signal of market rebound. In addition, if the upward pressure breaks through around 106.90, bulls will not rule out hitting the previous high of 107.35 again. Once it breaks through the resistance area of 107.35~107.50, more upside space will be opened.