Dollar Index: Yesterday’s Surge Suggests Uptrend Remains Intact for Now
Matt Weller, CFA, CMT November 21, 2018 1:38 PM
Risk assets are staging a comeback after yesterday’s big drop (perhaps on signs that the more extreme wing of Trump’s trade advisors is taking a backseat in the upcoming China talks), but the greenback is hardly giving back any of its gains.
As the chart below shows, the US dollar index rocketed higher from the bottom of its two-month bullish channel yesterday. In the process, prices formed a large “bullish engulfing” candle signaling a big shift back in favor of the bulls after Monday’s weakness. The combination of bullish price action and a logical support area (not to mention the surprising resilience today) suggests that the dollar may extend its rally in the days to come.
Source: TradingView, FOREX.com
From a fundamental perspective, monetary policy will be the key factor to watch. The market-implied odds of a Fed rate hike in December, long thought to be a “done deal,” ticked down to just 72% yesterday, according to the CME’s FedWatch tool. While today’s initial jobless claims and durable goods reports both came in on the soft side, we still believe that the central bank will feel comfortable raising rates again next month.
The bigger question surrounds the outlook for monetary policy moving into 2019. With major thought leaders from Jim Cramer to the Wall Street Journal Editorial Board to an increasing number of Fed policymakers to (of course) Donald Trump all calling for the central bank to tap the brakes, the clockwork once-a-quarter pattern of interest rate increases that we’ve grown accustomed to over the last year or two will likely come to an end in 2019.
When it comes to the US dollar, how the Fed approaches this conundrum will be the last, most important storyline to watch through the rest of the year.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.