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Talking Points:
-US Dollar Technical Strategy: Bullish Off 100-DMA into FOMC
-Consolidation before FOMC Statement Favors Upside
- Trader Sentiment Ahead of FOMC Flashing Contrarian Bullish Signals
Ahead of the December 16, FOMC meeting, markets are pricing in a 74% probability of a hike with a near 40% chance of an additional 25bps hike in March. In recent trading, the US dollar has seen the 100DMA near 12,040 act as firm support and going through FOMC, we can look at that level to hold, as the Fed’s plans for the next hike are made known. It appears now that the bearish channel (red) will soon break, and another impulsive move higher could take out the November 6 high of 12,219.
US Dollar Index is sitting on a cushion of support. The bottom of the support zone is the November opening range low at 12,013 up to the 50% retracement of the October-November range & 100-DMA at 12,040. Price has tested and held that level multiple times. Today, we saw a bullish key day ahead of the Federal Reserve rate announcement tomorrow. We will look for today’s low to hold as support going forward. The first level of resistance to break from here that would validate the bullish argument would be a move above the December 8 high of 12,157, followed by the December opening range high of 12,212 before Draghi gave a scare to EUR shorts on December 3, 2016.
Going into Wednesday, the Fed rate hike is presumed and priced in as the dollar fluctuates in preparation for the Federal Reserve’s decision on to raise interest rates for the first time since 2006. The focus in no uncertain terms is whether or not we could see a second hike rather soon. If so, we would further enhance the yield advantage of assets denominated in US currency as other currencies with a dovish central bank could fall further. Should a spread widening develop, US Dollar strength would become a dominating theme once again. As long as 12,040 holds as support, this remains the preferred view. A break below support could pour cold water on USD Bulls through the end of 2015.
