2023-05-22 13:28:00
In the name of God, the most gracious, the most merciful
And prayers and peace be upon the most honorable of the prophets and messengers, our Master Muhammad and his family and all his companions
Although the US Dollar consolidated its gains in the past week, the Unemployment Claims data which reported a decline in jobless claims came out less than expected and also compared to the previous reading. Which motivates the Federal Reserve to maintain its tight monetary policy comfortably, which supports the dollar for further rise.
However, surprises and shifts always come in Friday’s trading, as we saw the US dollar’s decline and its rise again, but what are the reasons behind these sudden shifts? What are the expectations for next week? What are the important data that the markets are waiting for?
Watch the illustrated report attached to the report until you complete your picture, and wait for our technical report, which includes a study of the price behavior of the dollar and gold, which carries many surprises.. I hope to present to you something different
All this on our YouTube channel, The Economic Academy
Jerome Powell’s remarks tip the scales:
On Friday in particular, we will stop for a while in order to analyze Jerome Powell’s statements, which caused a sudden change in more pressure on the dollar and the rise of gold. We must be aware of these statements well, as Jerome Powell, “Chairman of the US Federal Reserve” stated: Inflation is much higher than the Fed’s target, and it may not The Fed will be forced to raise interest rates more due to the tightening of bank credit conditions.
analysis :
This means that the Fed is close to the process of fixing the interest rate to reduce pressure on US banks that suffer from raising interest rates, which caused many US banks to falter, in addition to the increasing fears of an economic recession due to the availability of several factors that contributed to the increase in these concerns, in addition to Jerome Powell Substitute the process of tightening the conditions of credit operations as an alternative to raising the interest rate, which may have the same effect in reducing consumer spending to put pressure on inflation.
But will the Fed actually take this step by fixing interest rates? Perhaps the following picture shows that the Fed’s monitoring tool also has the rate of voting on interest rates reaching above 82%, as shown in the picture
Let’s continue
Jerome Powell added in his remarks:
Markets are pricing in a different path than the Fed and the current data supports the view that lowering inflation will take time and that the Fed has come a long way in terms of uncertainty about the delayed effects of monetary policy.
analysis :
Here is an acknowledgment by Jerome of his delay in raising interest rates after Corona, and therefore his continuation of the policy of monetary tightening to compensate for the time in which he was late in raising interest rates, in addition to his attention that the markets have another pricing and a different assessment from the US Federal Reserve, where the markets began to price the need to fix or reduce interest rates, and this appears in the behaviors The price of the US dollar index in light of the many challenges facing the US economy, including fears of slowing economic growth and fears of the debt ceiling, which weaken confidence in the US dollar, in addition to the challenges that tend to de-dollarization, as emerging market currencies play a greater role in international payments than It may further weaken the US dollar.
Solving the debt ceiling crisis means a decline in the dollar:
Perhaps some imagine that the solution to the debt ceiling crisis supports the rise of the dollar. This is not true. Raising the debt ceiling means more printing of the US dollar, which means an increase in the dollar supply. This in itself increases the weakness of the US dollar, but it reduces fears of recession and the occurrence of a global economic crisis with an American industry.
Bearing in mind that defaulting on US debt is catastrophic and not excluded, in conjunction with the failure of US banks.
Is it true that the United States of America did not previously default on its debts?
In 1979, due to a technological glitch as a result of the shift to automate the checks due to investors in US Treasury bills, with Congress slowing down in taking a decision to raise the debt ceiling, it failed to pay the checks due and at that time the investors did not receive checks for the returns of US Treasury bills and it amounted to 4000 checks with a total of 122 million dollars.
In 2011, there was an economic-political crisis between the Republicans and the Democrats during the Obama era, and because of that crisis, the credit rating of the US economy was lowered for the first time in history. At that time, gold rose and rose strongly, reaching historical levels at $1920 an ounce.
Risks of not raising the debt ceiling:
Debt default is not likely, but it is not excluded that Congress will delay in approving raising the debt ceiling as a kind of political tactic by the Republicans and influencing the popularity of the Democrats. However, at the same time, the White House and the Democrats will not be able to agree to cut government spending, as Biden will not concede a reduction. Large public spending of nearly $1.5 trillion in the 2024 budget, because it will hinder him from fulfilling his commitments and promises to the American people, and this will also affect his popularity. Many experts believe that a compromise can be reached through which a limited reduction in government spending can be adopted by half of what the Republicans demanded, that is, at the limits of $ 700 billion in the next budget. Each party still has to adhere to its position and claim that it emerged victorious from it, especially with the start of the presidential election season, which may impede reaching a compromise, so the consequences will be dire if they delay in raising the debt ceiling, including:
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The global financial system’s fate depends on the stability of US treasury bills, and thus a significant shake-up of confidence in the US economy
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The contraction of US economic growth with the decline in GDP and the occurrence of an economic recession is the worst in the world
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Unemployment rate could rise to 7%.
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6 million people lose their jobs with massive layoffs in American companies
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Lowering the credit rating of the US economy means lower confidence in US debt and an increase in the cost of borrowing.
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The course of the dollar and gold:
Negotiations to search for solutions to the debt ceiling crisis between the White House and the Republicans have temporarily stopped, which will give an opportunity for gold to rise in light of the uncertainty and increasing uncertainty regarding the issue of the US debt ceiling. “In the short term, the 4-hour frame. Follow the price behavior of gold.”
There may be many factors that support the rise of gold and further weakness of the US dollar in light of market expectations that interest rate fixing is very close.
But
The markets await many important economic data this week, which may help the Fed determine the interest rate it will approve at its next meeting. Will there be any surprises?
Surprise:
According to my analysis of the price behavior of the dollar, it indicates that it may actually correct downward this week temporarily, but with a technical look at the large weekly charts, we will notice that the dollar is heading to form a correct bottom W pattern that has not been completed, but there are some evidences confirming the possibility of the dollar rising to touch the neckline of that pattern at 105.673 points. Perhaps you will find these technical clarifications in the technical report that I will present later, after this report, while it is currently under montage
My discovery of this price behavior indicates that the Federal Reserve will surprise the markets by raising interest rates at its next meeting, or that an event will occur that will actually revive the dollar.
At the same time
Gold has technically negative indicators, which I explained in the technical report as well, and this outlook is in line with an analysis of the dollar.
Conclusion :
Uncertainty and ambiguity in the debt ceiling crisis, even if the crisis is resolved
But the course of the dollar technically says that something will happen that will make the dollar rise again and negatively on gold. I showed that to you technically, and sometimes the price behavior will be an indication of what will happen later, so is the analysis valid this time as well?
I have the honor to receive your inquiries, opinions and comments on the report .. provided that the comment is constructive and enriches the topic
Please accept my regards
Dr.. Muhammad Al-Ghobari
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