US Dollar retreats from post-election rally as markets turn to Federal Reserve decision

• The US Dollar pares some gains on Thursday with markets focusing on the Fed rate decision. 
• Although Fed Chairman Powell is expected not to answer questions on politics, markets will be eager to see his reaction to what the Trump presidency means for the Fed. 
• The US Dollar index heads into 104-territory after failing to hold its head above 105.00. 

The US Dollar (USD) is fading under profit-taking pressure on Thursday after the Greenback had its best performance in years in reaction to Donald Trump winning the US presidential election. Traders' attention shifts now to the Federal Reserve (Fed), which is set to cut interest rates by 25 basis points (bps) this Thursday. With the rate decision fully priced in, the focus will be on Fed Chairman Jerome Powell, specifically on the inflation and rate outlook for December and beyond in light of the US presidential election outcome. 

The US economic calendar is picking up in weight, with the weekly Jobless Claims set to be released. The quarterly Nonfarm Productivity and Unit Labor Costs will add some weight to the price reaction as well. Right at the end of the trading day, the Fed will release its rate decision, followed by Fed Chairman Powell's press conference shortly thereafter. 

Daily digest market movers: Normal programming until January

• The US economic calendar kicks off at 13:30 GMT with a string of data:
  • The Initial Jobless Claims for the week ending on November 1 are expected to come in at 221,000, higher than the 216,000 of the previous week. 
  • The preliminary reading for the third quarter Nonfarm Productivity is expected to come in at 2.3% compared to 2.5% in the previous quarter. 
  • The preliminary third quarter Unit Labor Cost is expected to tick up to 0.5%, from 0.4% previously. 
• At 19:00 GMT, the Fed is publishing its interest rate decision. Expectations are for a rate cut to 4.75% from 5%.
• At 19:30 GMT, Fed Chairman Jerome Powell will take the stage to deliver a speech and comments on the recent rate decision. During the press conference, there are bound to be questions on the Fed's stance in light of the recent Trump presidential election win. 
• The CME FedWatch Tool shows a 70.8% chance that the interest rate will be 50 basis points (bps) lower than the current level in the Federal Reserve's December 18 meeting. Assuming a 25 bps cut in November, a new 25 bps cut could be expected in December. A smaller 28.4% chance is present for the interest rate to be 25 bps lower than the current level in December, implying no cut that month after trimming rates in November.. 
• The US 10-year benchmark rate trades at 4.42%, settling down a bit after hitting 4.47% earlier.  

US Dollar Index Technical Analysis: It is still a long way until inauguration

The US Dollar Index (DXY) has played its hand and has made markets clear what the famous Trump trade will mean for markets when US President-elect Donald Trump takes office on January 20, 2025. While the Fed is set to continue its interest rate-cut cycle, a tug-of-war might occur. Traders could expect the second phase of the Trump trade in January with a stronger Greenback, while the Fed rate-cutting cycle suggests a softer Greenback. Refrain from expecting this to be a straight line-up for the DXY and rather expect to see substantial easing first before Trump takes office. 

The first upper level is 105.53 (April 11 high), a very firm cap resistance, with 105.89 (May 2 high) just above. Once that is broken, 106.52, the high of April and a double top, will be the last level standing before starting to talk about 107.00.

On the downside, last week's peak at 104.63 looks to be the first pivotal support nearby. Should the fade become bigger, the round level of 104.00 and the 200-day Simple Moving Average (SMA) at 103.85 should refrain from sending the DXY any lower. 

US Dollar Index: Daily Chart