USD Graphic Rewind: Dollar Index Ends Week Higher; Near-Term Outlook is Bullish
The dollar index closed solidly higher on Friday helping the index notch up its second weekly higher close in the last six weeks. The gains were largely spurred on by Fed Plosser’s hawkish comments midday where he commented that he expects Fed fund rates to return to around 2.5% by this time next year. Going on to say that he sees an exiting of accommodative monetary policy in the not too distant future. The hawkish sentiment took some wind out of the sails of the euro and pound which had been bid up in recent weeks on interest rate speculation and potential yield differentials, however, now the Fed is beginning to indicate that it too will be altering its monetary policy in the future the buck has caught some bids, finally.
On this daily chart we can see that the index is in the process of carving out a short-term base. While downside pressure is certainly still prevalent a break above 76.50 could see the index form a more meaningful base. Also on weekly charts, the short-term outlook for the buck is relatively bullish after extending losses in the early week but reversing and closing higher for the week indicates that the greenback was unable to extend losses which should provide momentum into this week. If the index can work through the congestion in the 76.50-77.50 region then a move back to 78.50 should confirm a more medium-term base being put in place and we can begin to look higher. However, failure to work through these levels will likely see bearish sentiment resume with gusto.
Written by Jonathan Granby, DailyFX Research Team
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.