US Dollar Index downside risks increase. FOMC, the next big event!

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US Dollar bill

Following last week’s analysis, the US Dollar index saw the rally being clipped near the 98.5 – 98.0 resistance. With the Euro turning bullish and the Yen staying flat, the US Dollar Index is starting to look more and weaker with the likelihood of a dip to 94.5 – 94.0 support level. Next week, the FOMC meeting will be the big fundamental risk. The Fed is expected to hold rates steady at the March meeting given that wage growth has not been that impressive. However offsetting the weak wage growth was inflation which has managed to turn positive. The Fed’s meeting will also see the press conference as well as new staff economic projections all of which could build significant noise the week ahead. For the moment, however, the US Dollar Index is likely to consolidate following yesterday’s declines of over 1.02% and a week to date declines of 1.08%.

US Dollar Technical Outlook

The weekly chart shows prices retesting the 98.50 – 98.0 resistance level last week. This week the Dollar attempt to test these levels but was met with strong selling pressure. Price is now trading below the 96.50 key level and limits any upside momentum while clearing the way for a decline to the 94.50 – 94.0 support level. From the weekly chart, the support level will be key. While there is scope for price action to bounce off the support and trade sideways within 98.0/98.5 resistance and 94.0/94.5 support, a downside break following the break of the rising trend line could see further downside which would be very bearish for the Greenback.

US Dollar Index – Weekly Chart (Retest of the breakout from the trend line)
US Dollar Index – Weekly Chart (Retest of the breakout from the trend line)

On the daily chart, prices are currently consolidating into another triangle pattern. Any upside gains will see a test of minor resistance near 97.5 – 97.25. Holding the gains here could see a possible break to the downside and below 96.0, the next support is at the 94.50 – 94.0 support.

US Dollar Index- Daily Chart (Watch for new resistance near 97.50 – 97.25)
US Dollar Index- Daily Chart (Watch for new resistance near 97.50 – 97.25)

On the 4-hour chart, following the rising wedge pattern and the breakout from the rising trend line, the US Dollar Index saw a quick rally back to the resistance near 98.0 and fell sharply to the lower support near 96.50 – 96.0. The new median line tracing the currency price action shows a potential recovery to the upside which could be limited near the 97.0 – 97.50 minor resistance. Establishing a new resistance level here could potentially risk the current support, which could give way for further declines.

 US Dollar Index- H4 Chart (Short term recovery is likely towards 97.0 – 97.50)
US Dollar Index- H4 Chart (Short-term recovery is likely towards 97.0 – 97.50)

In conclusion, the US Dollar Index could post a moderate recovery towards the 97 – 97.50 level to establish a new resistance level, in which case, the support at 96.0 – 96.50 could turn weaker and give way to a further decline to 94.0 – 94.50.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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