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US Dollar Index likely to range sideways into next week’s FOMC meeting

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US Dollar Index – Weekly Technical Analysis 11th December

The US Dollar Index saw a rough week since last Thursday’s ECB monetary policy decision. On Thursday, the day of the ECB’s monetary policy, the US Dollar Index fell strongly losing -2.10% and wiping out the gains from the previous 18-days. Prices then managed to bounce back later on Friday after the US Nonfarm payrolls were released. However, the Dollar Index started its decline since Tuesday this week with prices falling a further -1.36% for the two days combined. The strong losses this week came about as investors un-winded the US Dollar Long positions which has started to show signs of exhaustion as the US Federal Reserve is due to meet on the 16th of December next week for the first rate hike in a decade.

While the markets aren’t sure what to make of the US rate hikes, there is a good possibility that further clarity is required into the pace of the rate hikes once the tightening cycle starts. With the previous years of low interest rates led to markets outside the US borrowing in US Dollar, and thus leading up to a strong multi-year rally, once rates start to rise, the US Dollar is likely to see less demand as markets focus on servicing their US Dollar denominated debt. This could potentially see the US Dollar being less preferred than what is currently being seen.

US Dollar index – Technical Analysis

From the technical outlook, the US Dollar Index touched down and reversed off the identified support at 97.28. Provided prices follow through, the next resistance level to tackle will be 98.61, which was already tested briefly. In the event that resistance holds, the US Dollar index could potentially look to another leg of declines to 97.28 with the possibility of a test to the lower main support at 96.64 – 96.36.

US Dollar Index – Daily Chart (11/12)
US Dollar Index – Daily Chart (11/12)

From the weekly charts, we expect prices to remain put within the current levels identified off the daily chart into next week. The weekly candle close might be of some importance as a small bodied close this week could potentially signal a move to the upside next week on break above this week’s high of 98.90. The median lines on the chart shows prices initially failing near the 100 region before breaking down to test the median line. Should next week’s price action fail to break above 100 and potentially close above the median line, it would signal a decline in the US Dollar for the longer term. The support at 97.28 is key as a weekly close below this level could see prices turn lower and look towards a longer term correction in prices.

US Dollar Index – Weekly Chart
US Dollar Index – Weekly Chart

And finally, on the 4-hour chart, the price action shows the bounce off the 97.28 support with the possibility that prices will retest the 98.57 – 98.9 level of resistance. How prices will react to this level will be important as it could offer some early clues into the bias ahead of the FOMC meeting next week. A close above 98.90 will no doubt turn bullish for the US Dollar index, while if prices are capped below this level, we could expect to see a new leg of correction.

US Dollar Index – 4 hr chart time frame
US Dollar Index – 4 hr chart time frame
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