Forex Trading Library

US Dollar Index Weekly Analysis 2015-02-27

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It was a particularly interesting week for the Greenback with fundamental risks from Fed Chair, Janet Yellen’s testimony to the Senate and yesterday’s data dump. Although the Dollar index was weak for the most part of February, there are subtle signs that the recovery is likely to start and put the Greenback into the driver’s seat again. While initially, Janet Yellen’s prepared testimony seemed dovish, which resulted in a knee-jerk sell off in the US Dollar, on closer inspection the markets are starting to realize that the Fed is likely to prepare the markets in the coming FOMC meetings, especially by getting rid of the word “patient” in its statement. While the Fed has repeatedly mentioned that interest rate hikes will be data dependent, the fact that interest rates will rise this year is an aspect that the markets will sooner or later grasp.

USDOLLAR INDEX 2

 

From a technical perspective, the Dollar Index eased back after forming a weekly hammer pattern late in January. Since then, the Index declined, albeit very modest for the past three weeks. Last week’s candlestick closed bullish and should we see the same trend play out today, the Greenback could very well look to break its previous highs at 95.85 high in the coming weeks.

In our past weekly technical analysis we noted that a break below 93.97 will be key and this level has managed to hold strongly so far with only a brief dip below this level before pushing back comfortably higher. The weekly chart for the Dollar Index is shown below.

USDOLLAR INDEX 3

Looking to the daily charts, we noted previously that the level of 95.16 will give early clues for the uptrend to resume. At the time of writing, the Dollar Index managed to close above this level yesterday, but today’s higher close above 95.16 will signal the uptrend to start again, especially considering yesterday’s very bullish candlestick.

The 4-hour charts of the Dollar Index shows yesterday’s price action break out from the upper range of the consolidation at 95.13. In the very short term this H4 chart can give early indications into the future price action. If price holds steady above 95.13, we could very well assume that the uptrend will start to pick up but not before seeing a dip down to the secondary trend line.

USDOLLAR INDEX

The main fundamental risk to the Fed’s rate hike plans was inflation and with yesterday’s CPI data showing that core inflation was steady at 1.6% on an annualized basis the focus will shift to the February jobs report due to be released next week. Should we see another upbeat jobs reports, the Fed is more than likely to remove the word “patient” from its statement with the markets gearing up for a possible rate hike anytime this year. Be it June or even September of 2015.

USD revised GDP data is on the tap today and this could potentially be the last piece to the puzzle. Consensus is expecting GDP to be revised downwards from 2.6% to 2.1%, which should be very supportive of the Greenback as long as the estimates are met and GDP doesn’t drop any lower.

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