USDOLLAR Index Triangle Finding Resolution Higher
- USDOLLAR Index trades through key former swing high of 12093.
- See the April forex seasonality report.
As interest rate expectations were decimated in the wake of the March FOMC meeting and March NFP report, the US Dollar's bull run had taken a backseat to the short-term influences of a) profit taking and b) traders attempting to call the top after a historic eight-month rally.
Nevertheless, the consolidation that's played out over the past three-plus weeks emerged at the start of this one as a symmetrical triangle, which while a neutral pattern, in the context of the recent rally, was favoring new highs. With the USDOLLAR Index trading through topside triangle resistance as well as the intraday March 20 swing high - marked by an outside reversal bar on the H4 timeframe, which subsequently capped the greenback's rally between March 31 and April 1 - there is evidence that the triangle is resolving itself higher. The implication is that USD-pairs could be on the verge of setting new price extremes (lower EURUSD, lower GBPUSD, higher USDCAD, etc.) relative to their March levels.
What's driving the recent greenback rally? Perhaps it might be overstretched dovish expectations for the Fed: market participants are pricing in the first Fed rate hike to come in December 2015; whereas Fed officials, as revealed in the March FOMC minutes, still believe that strong enough economic data could warrant a rate hike in June. Either way, there is a significant gap between what policymakers are saying and what markets believe; even if it closes halfway (say, to the market repricing a September rate hike), it could result in interest rate differentials moving favorably for the US Dollar.
See the above video for technical considerations in EURUSD, GBPUSD, USDCAD, and the broader USDOLLAR Index.
--- Written by Christopher Vecchio, Currency Strategist
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