US Dollar Index Weekly Analysis – 09/01
This week, the FOMC released its meeting minutes from its December monetary policy. The general take away from the minutes was that interest rate hikes were ruled out until April 2015. Despite the upbeat growth, the FOMC members were cautious of potential downside risks to domestic activity and employment. The minutes were revealed after the monthly ADP jobs numbers beat estimates, rising 241k, above the estimates of 227k.
The FOMC members were also not particularly concerned with inflation, as the minutes showed that it would be possible for the Federal Reserve to hike rates despite core inflation staying below the Fed’s target of 2%.
This week also saw some tier 2 fundamentals such as durable goods orders and manufacturing as well as non-manufacturing PMI’s which failed to meet estimates. A cautionary headline considering the data continues to be weak since November, the first month after the Federal Reserve ended its QE support to the economy.
Noticeably, the US Dollar was mixed, especially after the FOMC meeting minutes, which the markets at this point construe as neutral; neither too dovish, nor too hawkish.
The Dollar Index continued to post fresh highs, with yesterday seeing a new high to 92.75 being printed. With last week’s price action closing bullish, there is little to no doubt that the Dollar Index is clearly poised for further upside gains with the possibility that declines could be supported near 91.57 levels as seen on the monthly charts, while the upside target remains near 98.16.
Switching to the daily charts, the price action especially this week has showed the average 5 day true range has eased from its highs indicating that the bullish trend is losing steam and is possibly waiting for a catalyst to revitalize the bullish trend. Today’s NFP might just be that catalyst the Dollar Index is looking for as consensus looks for the month of December to add 241k jobs as well as any revisions to November jobs report which posted a solid 321k number beating estimates.
Looking to the H4 charts however, we notice that yesterday’s high was marked with an inverted hammer candlestick which followed through with a bearish lower close. Therefore, unless we see a close above the highs at 92.75, we could potentially expect a correction taking shape or in other words expecting to see the NFP missing estimates. However, considering the monthly charts and the support at 91.57, even if the December jobs report (which incidentally is expected to be volatile) comes out lower than expected, the fact that the Dollar Index is still well supported and that the larger upward trend in the monthly jobs report is not threatened is the most likely scenario that could play out.
This week we already got a glimpse as commodity risk currencies, the Aussie and the Kiwi dollar managed to lift off from their lows, a scenario that plays well into the possible outcome that we could see a correction in the Dollar Index in the near term, followed by a likely rally boosted by the retail sales data for the month of December which will be released next week. Considering that retail sales from the UK and Eurozone for that matter managed to beat estimates, it is quite likely that we will see the same trend continue with the US retail sales data as well.
To conclude this week’s analysis, the Dollar Index looks a bit weaker posting new highs with a correction down to 91.57 being the most likely outcome. Expect the Greenback to continue to remain mixed at least for next couple of weeks.
