Last week, the latest Federal Reserve resolution first talked about the topic of interest rate cuts, which triggered a great change in market expectations, and therefore, large categories of assets appeared in different degrees, among which it was logical for varieties such as gold and US stock indexes to benefit.
It seems reasonable that the US dollar has dropped significantly after the news, but a careful scrutiny will still reveal some doubtful point.
There is no obvious correlation between the US dollar and US interest rate. Even in the previous round of Fed rate hike, the US dollar even went down all the way. Of course, this can be explained by "good cash, falling prices", but at least it can prove that the beneficiaries of rate hike are US bond yields rather than the US Dollar Index itself. Therefore, the decline of the US dollar last week is more like a knee-jerk reflex under unexpected changes.
Secondly, unlike gold and US stocks, there is another important parameter for the rise and fall of the US dollar-Euro.
After the Fed's dovish expectations, ECB President Lagarde made a surprise statement that the ECB was not discussing interest rate cuts at all, which made the euro perform relatively strongly in the short term. However, comparing the economic data of Europe and America, we can find that the economic performance of the United States is still ahead of that of Europe, and the political stability of Europe will not be better than that of the United States.
Therefore, in terms of real interest rate prospects, the market had expected the European Central Bank to cut interest rates earlier.
Interestingly, after the news of the Federal Reserve was released, many officials within the Federal Reserve gave an hawkish attitude. Williams, the third-in-command of the Federal Reserve and chairman of the New York Federal Reserve, said in an interview with the media that the Fed has not really discussed interest rate cuts at present; Bostic, the dovish chairman of the Atlanta Federal Reserve, is not even as dovish as the December bitmap shows in his expectation of cutting interest rates next year.
Based on the above-mentioned basic situation in Europe and America and the internal situation of the Federal Reserve, we are more inclined that the Federal Reserve will not start to cut interest rates significantly earlier than the European Central Bank, and even Europe will be faster.
Back in the market itself, the dollar quickly fell below the previous callback low, which was also the previous callback position of 61.8%, after two consecutive losses hit by news last week.
The latest structure suggests that the possible new low is around 101.25, and then the fall correction will be completed. However, as long as it remains above the previous weekly low of 99, the medium and long-term US dollar will still be relatively more suitable among foreign exchange varieties.
On the corresponding euro exchange rate, there was a situation of higher opening and lower going last Friday. Although it slightly refreshed the rebound high point, it failed to stand firm at 1.1, which may be a foreshadowing, but it needs more price fluctuations to verify. At present, it is still the balance of power or the euro bulls have a slight advantage.
From the strategy itself, after last week's market, with the approaching of Christmas and New Year holidays, volatility is expected to start to decline gradually, so we can consider shorting volatility trading.
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