Talking Points:

- USDOLLAR Index holds daily 34-EMA as support.

- EURUSD main driver behind broader USDOLLAR rebound.

- See the March forex seasonality report for trends in the QE-era.

The rapid build in short positioning ahead of the FOMC meeting brought the market back in line with the extreme positioning seen in early-February (196.3K net-short contracts for the week ended February 3), right before a month-long consolidation developed in EURUSD. Now that the Fed has essentially changed the goalposts on raising rates – pushing the likelihood of the first rate hike to December, per the federal funds futures contracts implied probability – the weak data coming out of the US provides good reason for the massive net-long US Dollar position to be unwound.

US economic data has been coming in well-below analysts’ expectations, as forecasters have tended to be too optimistic about the US economy upon the start of a new year. The Citi Economic Surprise Index (CESIUSD), a gauge of economic data momentum relative to expectations, has fallen to its lowest levels since July 2012.

Even during a period of seasonal weakness (US data has underperformed during Q1 and early-Q2), 2015 has been unseasonably weak. The average of the CESIUSD over the past five years (2010-2014) on March 24 is +24.64, whereas the 2015 reading currently sits at -57.8. Even compared to last year, when the cold winter roiled the economy in the first few months of the year, the CESIUSD only registered -32.6 on March 24. Needless to say, data so far in 2015 has been vastly underperforming expectations.

The selling across USD-pairs has brought the greenback squarely in line with perhaps its most significant mean reverting level over the past eight-months. The daily 34-EMA, which has defined the USDOLLAR Index uptrend since last July and has held as support on numerous occasions in between, now faces a very real threat of losing its grip as the backbone of the rally. Coincidentally, EURUSD's daily 34-EMA has held as resistance in line with the post-FOMC swing high of $1.1040. This is a good reference level for market participants, considering US economic data has been so negative and a rate hike in 2015 is unlikely before December: perhaps all of the negativity surrounding the greenback is priced in for the immediate future.

Read more: Post-FOMC Levels Holding USD for Now; JPY-crosses Begin Breakdown

--- Written by Christopher Vecchio, Currency Strategist

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