USD Index Strengthens for Multiple Days, Focus on Fed Chair Powell's Speech for Key Clues on Interest Rate Pause.

According to CME's "Fed Watch": The probability of the Federal Reserve keeping interest rates unchanged in June is 63.8%, and the probability of a 25 basis point rate hike is 36.2%. In July, the probability of maintaining interest rates at the current level is 61.4%, the probability of a cumulative 25 basis point rate cut is 5.5%, and the probability of a cumulative 25 basis point rate hike is 33.0%.

At 11 p.m. Beijing time on Friday, Federal Reserve Chairman Powell will give a speech at 9 a.m. U.S. time on Friday. His remarks have a greater impact on the value of the U.S. dollar than anyone else, so traders can closely monitor his speech for clues about future monetary policy.

>U.S. Dollar Index<

The U.S. Dollar Index (DXY) measures the value of the U.S. dollar against a basket of major currencies. It serves as an indicator of the overall strength or weakness of the U.S. dollar in the foreign exchange market.

Fundamental Analysis:

In recent days, the U.S. dollar has strengthened to a two-month high due to strong U.S. economic data and hopes of reaching a debt ceiling agreement. As of now, the price of the U.S. Dollar Index stands at 103.566, with a gain of 2.11% since last Thursday.

Currently, there are two key signals that could affect the U.S. Dollar Index:

1. Speech by Federal Reserve Chairman Powell:

Federal Reserve Chairman Powell's speech on Friday morning (U.S. time) will be closely watched for any key statements indicating a pause in interest rate hikes. Despite signs of overall economic slowdown from recent indicators, the pace has been slower than expected. The number of jobless claims announced on Thursday was also significantly lower than expected, indicating continued strength in the labor market. The market expects the Federal Reserve to start cutting interest rates in the second half of the year, but Powell has not clearly expressed an intention to lower rates.

Therefore, Powell's speech on Friday will be crucial, as any information he reveals will impact the direction of the U.S. dollar. Currently, the probability of the Federal Reserve pausing interest rate hikes in June is 63.8%, while the probability of a 25 basis point rate hike is 36.2% and may continue to rise.

If the Federal Reserve announces a pause in June, the U.S. dollar's recent strong upward trend may stall. If the topic of pausing interest rate hikes is not mentioned, the U.S. dollar is likely to continue to rise.

2. Final Meeting Result on Debt Ceiling Crisis Resolution:

The meeting to address the U.S. debt ceiling crisis has been repeatedly postponed, with less than half a month remaining until the expected deadline. President Biden canceled meetings with Japan and Australia, indicating a priority to reach an agreement on the debt ceiling. Although Tuesday's meeting was only one hour long, Republicans agreed to a deal tied to spending cuts and indicated that the final resolution would be announced over the weekend.

Clearly, the signals from the government suggest that the debt ceiling crisis will be properly resolved, alleviating market concerns and boosting the strength of the U.S. Dollar Index, which has seen continuous gains for the past four days since Tuesday.

Technical Analysis:

From the daily chart, the U.S. Dollar Index is currently at around 103.6, which serves as a support level with a trending breakout. The Stochastic indicator indicates that the market is in overbought territory, but the strong upward trend of the two lines and the noticeable upward trend of the RSI indicator also signal a potential increase. In the MACD indicator, the bullish histogram is gaining strength, and the indicator line is above the zero line.

Overall, the daily chart of the U.S. Dollar Index suggests strong upward momentum, with the next support level around 104.69 after a breakout of 103.6. However, a downward correction may occur afterwards. Therefore, it is important to pay attention to Powell's speech today as it may have a crucial impact on the U.S. Dollar Index and its potential to break the 103.6 level.

From the hourly chart, there is a "dark cloud cover" pattern appearing in the candlestick chart, suggesting a potential market reversal. Moreover, the upward trend in key indicators has started to weaken, and bearish momentum is strengthening. If there are no new catalysts to drive the U.S. dollar higher, the price may fail to break the resistance level at 103.6 and instead consolidate in the range of 103-103.6. However, if a breakout occurs, the price may rise within the 38.2%-61.8% range of the Fibonacci channel.

>Gold<

Fundamental Analysis:

Due to the strength of the U.S. Dollar Index and improved market sentiment, gold experienced a significant decline this week. The release of a series of U.S. economic data showed a less severe recession than expected, raising expectations for further interest rate hikes and putting downward pressure on gold prices. Additionally, with the resolution of the U.S. debt ceiling this week, it is possible for gold to drop below 1950.

Technical Analysis:

From the daily chart of gold, the appearance of "three black crows" suggests a potential reversal signal, indicating a minor pullback in price with resistance around 1980. However, there is limited momentum to sustain the upward movement of gold. Therefore, if the U.S. dollar continues to strengthen, there is a high possibility that gold will continue to decline and potentially reach a two-month low around 1920.

Based on the hourly chart of gold, at 1 a.m. Beijing time on May 20th, Powell will deliver a speech. Currently, the gold market shows strength in the bullish momentum, but the selling pressure remains strong, indicating a potential correction in gold prices while still being in a downward channel.

Taking these factors into consideration, shorting gold is currently an option for investors. The sell price is 1964.73, with a stop loss at 1973.16, and a take profit at 1949.5, resulting in a risk-reward ratio of 1.71.

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