The US Dollar index continues to show signs of weakness as the failure to break above the previous higher close at 95.26 has shown that a possible correction is underway. The recent FOMC meeting minutes saw the markets understand for being dovish further added downside pressures to the Dollar index. Although on closer inspection there was nothing specifically dovish about the meeting minutes, the markets merely reacted to the fact that the Fed members were comfortable with keeping rates lower for longer period of time, with the main keyword being “longer”. Fed officials however have repeatedly stressed that the markets should not be infatuated with the timing of the fed rate lift off but should focus on the gradual future rate hikes, something which the markets are ignoring for now.
From the daily charts, we notice our view of a correction gaining weight with quite a few candlesticks showing bearish reversals near the top. Although yesterday’s candle was bullish, we find the short-term strength in the Dollar index to be very short lived.
The first daily chart below shows price action trading close to a new rising trend line with price trading very close to this level. A break of this smaller trend line followed by a close below 94.14 could see a dip down to 92.68 provided the short term support near 93.68 gives ways. Else, we could see some sideways price action in the Dollar Index before the direction is decided upon.
Looking at the weekly charts for clues, we notice last week being the third week of declines in the Dollar Index. However, this week saw a lower open near 94.17, below last week’s close of 94.23. Should today’s price action see the Dollar index close higher or above 94.79, it would raise our conviction that we could see the rally resuming. However, until the previous higher close of 95.14 is firmly taken out, we continue to maintain our bearish view of the Dollar index. Therefore, only a close below 93.97 could raise the conviction of a continuation of the weakness in the Greenback.
In terms of economic data, there are no major events scheduled for today with the exception of the Flash manufacturing PMI later this evening. It is unlikely that this event alone would result in the Dollar Index giving hints to the market sentiment for the coming week. Next week, Fed Chair, Janet Yellen will be giving her testimony to the US Congress which will undoubtedly be closed monitored especially when confronted more directly in terms of the timing of the rate hikes. Any doubts or misinterpretations from the recent meeting minutes is most likely to be ironed out during Yellen’s speech which should bring some amount of volatility to the markets, especially the Greenback and could also set the future course of direction in the Dollar Index.
For the moment, the Greenback is trading mixed after managing to retrace most of its losses from the FOMC meeting minutes.
