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US Dollar Technical Forecast: Fresh Highs Ahead FOMC, What’s Next?

US Dollar Technical Forecast: Fresh Highs Ahead FOMC, What’s Next?

2019-07-28 09:00:00
James Stanley, Currency Strategist
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US Dollar Technical Forecast Talking Points:

  • The US Dollar showed strength throughout this week, rushing up to fresh seven-week-highs ahead of next week’s widely-expected rate cut out of the Federal Reserve.
  • Next week will bring the Fed’s first rate cut in a decade; but more pressing to near-term price action is what the bank might be planning for after. This week’s strength emanated from the prospect of this being a ‘one and done’ type of deal after the Fed over-tightened last year. But – will the bank echo that tune, or keep the door open for more?
  • DailyFX Forecasts are published on a variety of markets such as Gold, the US Dollar or the Euro and are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Technical Forecast for the US Dollar: Neutral

Here Comes the FOMC

The stage is set and at this point, it would probably be a far larger disappointment if the FOMC did not cut rates next week. This has been a pensive theme now for eight months and the last rate hike out of the bank in December all-of-the-sudden doesn’t look like such a great idea. The Federal Reserve remained hawkish through last year, even in the face of falling equity prices in Q4 in the effort of ‘normalizing’ interest rates. This comes after a series of emergency rate cuts in 2008 and a few different rounds of QE along the way. Janet Yellen started hiking in December of 2015 and another rate hike followed a year later. But, in calendar years of 2017 and 2018 the Fed hiked a full seven times.

Coming into 2019, it looked like that plan for further rate hikes was very much on the table. At that December rate hike last year the bank said that they were looking to boost rates another two times in 2019. Market participants didn’t like that one bit, and stock prices continued their descent through the holidays. But Q1 was marked by a number of hints from the Fed that rates would not continue to rise and, perhaps even start to fall. This was echoed at the March rate decision when the bank cut expectations for hikes this year to zero; and finally in the month of June the Fed began to forecast a cut in 2019.

At this stage – the big question is just how dovish might the Fed be, and this has taken a recent hold of near-term price action as this scenario is in the spotlight. Last week saw a great illustration of that fact when some off-hand comments from NY Fed President John Williams were inferred to mean that the bank was looking to take aggressive action. This brought a quick gust of weakness into the Greenback as gold prices flexed all the way up to 1450. This was soon walked back by the New York Fed, and in response the US Dollar started to gain and quickly faded-out that prior move of weakness.

That theme has continued into this week, pushing USD price action to fresh seven-week-highs and making a fast approach at the 98.33 double top from Q2.

US Dollar Two-Hour Price Chart

USD Two-Hour Price Chart

Chart prepared by James Stanley

At this stage, chasing the Greenback can be a challenge, particularly considering the fact that this rally is taking place ahead of a widely-expected rate cut. The early portion of this week showed near-parabolic like price action in the USD, and this continued through a couple of key areas of resistance at both 97.70 and 97.86. There’s an additional level of interest on the chart at 98.33, which is a double top formation that built in through Q2 trade. If prices move up here and begin to show resistance, the door can quickly open for short-side swing potential. Conversely, if this level does not impede the advance, then bullish breakout potential remains and targets can be directed up to the 98.50 level on the chart that hasn’t been in-play since May of 2017.

US Dollar Daily Price Chart

US Dollar Technical Forecast: Fresh Highs Ahead FOMC, What’s Next?

Chart prepared by James Stanley

US Dollar Technical Forecast for Next Week: Neutral

For next week the technical forecast will be set to neutral on the US Dollar. While this week’s trend has been clear and well-defined, the area of resistance currently being tested on a longer-term basis is imposing. And combine that with the fact that a very big driver is sitting on the headlines, and while it may be easy to ascribe a hawkish lean from the FOMC, traders should be very careful with projecting too closely what the bank might actually do come Wednesday. As such, the forecast will be set to neutral until one of these scenarios can show more clearly, either USD-strength through this key zone of resistance or USD-weakness on the back of a dovish flip at the Fed.

US Dollar Weekly Price Chart: Trading at a Troubling Area – Will a Rate Cut Finally Bring a Long-Term Breakout?

DXY Price Chrat

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts have a section for each major currency, and we also offer a plethora of resources on Gold or USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers an abundance of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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