Dollar Analysis: Resilience in the Context of Firing Events, 4-Hour Chart Reflects Triangle

In the European session on Wednesday (August 27), the dollar index (DXY) is currently trading around 98.62, rising about 0.42% during the session, showing resilience after the recent correction. The market is digesting better-than-expected US economic data, including consumer confidence and durable goods orders, which provided support for the stability of the dollar.

Federal Reserve independence concerns and political risks

Mr. Trump fired Lisa Cook over a "mortgage document dispute" in an unprecedented move that has sparked a legal battle and fuelled speculation that the Federal Reserve will shift to more accommodative policy. Mr. Cook's lawyers have vowed to file a lawsuit arguing that the president does not have the power to fire a Fed governor, a matter that could lead to a long court battle that could even go to the Supreme Court.

Jamie Cox, an analyst at Harris Financial Group, points out that Trump is effectively "usurping the Fed's forward guidance," and that his signal to cut interest rates has caused the Treasury yield curve to steepen.

The yield on the two-year US Treasury hit a low of 3.6540 per cent, reflecting bets on short-term easing, while the yield on the 30-year rose to 4.9223 per cent on fears that premature easing could spark inflation.

However, the short-term impact of the dismissal on the dollar appears limited, as Cook's departure will not significantly change the direction of decision-making at the upcoming FOMC meeting, given Fed Chair Jerome Powell's "data-driven" policy framework.

Economic Data Outlook

Focus is shifting to key economic data to be released soon, including a revised second-quarter gross domestic product reading and the Fed's preferred inflation gauge, the July core personal consumption expenditure price index. A strong reading could dampen expectations of a rate cut, while a weaker reading could further strengthen the rate-cutting bet.

According to CME's FedWatch Tool, the probability of a 25 basis point cut in September is 87%, up slightly from the previous day.

Lee Hardman, a senior foreign exchange analyst at Mitsubishi UFJ Financial Group (MUFG), stressed that the dollar's resilience is likely to persist until the August non-farm payrolls data and inflation report confirm the Federal Reserve's September policy plan.

Due to the release of less economic data today, the dollar is expected to remain stable, but Trump's attempts to influence regional Federal Reserve presidents could create long-term volatility in the market.

technical analysis

(Dollar index 4-hour chart, source: Internet)

On the 4-hour chart, the dollar index is in a "symmetrical triangle" pattern, suppressed by downside resistance around 98.80 above, and supported by gradually rising lows below. The 50-day exponential moving average (50-EMA, 98.23) and the 100-day exponential moving average (100-EMA, 98.24) are converging, indicating a neutral short-term trend.

The Relative Strength Index (RSI) shows that momentum is improving and not in overbought territory; the MACD indicator is slightly positive, suggesting a cautious bullish bias in the market.

If the USD index breaks through the resistance level of 98.82, the next target range may be 99.32-99; if bears dominate the market, the support level of 97.64 is crucial.

The recent steepening of the Treasury yield curve has not put significant pressure on the dollar, as short-term interest rates have remained stable.

At 19:17 Beijing time, the US dollar index was trading at 98.6370/6589, an increase of 0.43%.