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US Dollar Technical Analysis: Priced-In Rate Hike Keeps USD Steady

US Dollar Technical Analysis: Priced-In Rate Hike Keeps USD Steady

Tyler Yell, CMT, Currency Strategist


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Talking Points:

-US Dollar Technical Strategy: Upward Pressure on Surprise Hawkish Rate Forecast

-Corrective Channel In Focus, Break Above Turns Attention to Trend Channel / YTD Highs

- 100-DMA Remains Bullish / Bearish Line-In-The-Sand

The dollar looked comfortable throughout the FOMC rate announcement, where a unanimous vote brought an end to the Zero Interest Rate Policy or Z.I.R.P. However, while a rate hike was 76% priced in, the hawkish surprise of today’s meeting was that the Federal Reserve signaled a “gradual” pace of increases that would include four 0.25bp rate increase in 2016. This rate-hike flight path expectation was seen as a hawkish surprise that has put the 2-yr yield above 1%, and this, along with the US Dollar has room to strengthen further.

The 100-day moving average held strong through the early shake-out in US Dollar. Now, the focus turns to the early December high of 12,212. If the price can break and close above such a level, would easily validate a strong move into January 2016 should the 100-dma continue to hold. Above the 100-day moving average at 12,040, the closing low of 12,063 should also hold. Multiple Dollar indices like the DXY would align with a bullish pattern as the counterparts of the US Dollar Index of EUR, GBP, JPY, & AUD still looks to have downside risks that could further support USD.

The resilience of US Dollar appears encouraging for USD Bulls. While not a trade recommendation, the risk: reward profile for an approach to new highs alongside and surprisingly bullish Federal Reserve appears to support the long-view for now. The risk is that price remains within the corrective channel (red), and the price could continue lower if the price is unable to break higher. If the price stays within the channel, it is expected that the 100-dma would break, which would turn the bias lower. Until then, it appears game-on for USD Bulls.

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