What’s Happening?
After retreating through January, the USD has been recovering this month forming a saucer bottom that appears near completion. It could be a big week for the US Dollar with a big focus on whether or not the central bank could raise interest rates again in March and what that may mean for the number of times the Fed may raise interest rates this year. Hawks and doves could battle over the implications FOMC Chair Yellen testimony, other Fed speeches and US data between Tuesday and Thursday in particular.
Technicals:
For the last two to three months, since the bit post-election surge up off 95.00, the US Dollar index has been trading back and forth between 99.50 and 103.50. A December surge was offset by a January decline. Through the pullback, the RSI held above 40 indicating it as a correction within an uptrend.
Earlier this month, a hammer candle indicated the bulls were starting to regain control from the bears. Since then, steadily higher lows below 101.00 and the retaking of 100.00 indicated renewed accumulation forming an ascending triangle and the back half of a saucer bottom.
Currently, the index is testing 101.00 where a breakout would confirm the start of a new upswing. RSI regaining 50 already indicates momentum turning upward. Next potential resistance on a breakout may appear near 101.30 the 50-day average then 101.70 and 102.00. Support rises toward 100.60.
Fundamentals
The main factor driving the US Dollar index of late has been US monetary policy and interest rate speculation.
The US Dollar has been rising and falling reflecting attitudes over how aggressively hawkish the FOMC may be over the next 12 months. I have been using as a rule of thumb 95 pricing in 2 hikes, 97.50 pricing in 3 hikes 100.00 pricing in 4 hikes and 102.50 pricing in 5 or more hikes in 2017.
The big rally up from 95.00 to 103.50 over November and December priced in a much more aggressively hawkish Fed following the election but appears to have been overdone, hence the correction back toward 99.50.
The USD index moving back above 100.00 has the hawks dominating again with a focus on the March meeting. For the Fed to keep to their gradual pace, if they plan to raise rates four or more times this year, a March increase is a must. If they pass in March, three (the Fed’s party line) would still be possible but two more likely.
Therefore, this week’s testimony from Fed Chair Yellen, speeches from Regional Fed Presidents (voters Harker, Kaplan non-voters Rosengren, Lacker) and data points like inflation, retail sales and regional reports may all impact the market through the lens of whether they suggest a March rate increase is more or less likely. Hawkish developments could push the index upward, dovish developments could push the Dollar downward.
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